GDP growth slowed to a 1.6% rate in the first quarter |
The U.S. economy continued growing in the first quarter, albeit at a slower pace, but persistently high inflation continues to confound investors’ hopes that the Federal Reserve will begin slashing interest rates in the coming months. The Commerce Department said Thursday that GDP expanded at a 1.6% seasonally- and inflation-adjusted annual rate, some way below the 2.5% gain projected by economists in a Bloomberg survey. Consumer spending increased 2.5% in the period, down from a 3.3% gain in the fourth quarter and below the 3% Wall Street estimate. Fixed investment and government spending at the state and local level helped keep GDP positive on the quarter, while a decline in private inventory investment and an increase in imports subtracted. Net exports subtracted 0.86 percentage points from the growth rate. The personal consumption expenditures price index, a key inflation variable for the Federal Reserve, rose at a 3.4% annualized pace for the quarter, its biggest gain in a year. “This was a worst of both worlds report – slower than expected growth, higher than expected inflation,” said David Donabedian, chief investment officer of CIBC Private Wealth U.S. “We are not far from all rate cuts being backed out of investor expectations. It forces [Fed Chair Jerome] Powell into a hawkish tone for next week’s [Federal Open Market Committee] meeting.”