Quick Bites | Fed Expectations on Roller Coaster

US economic growth slowed more sharply early this year than initially estimated, as consumers eased up on spending amid rising prices and high interest rates. US gross domestic product, adjusted for inflation, grew at a 1.3% annual rate in the first three months of the year. That was down from 3.4% in the final quarter of 2023 and below the 1.6% rate reported last month in the preliminary first-quarter estimate.

The preliminary data fell short of forecasters’ expectations, but economists at the time were largely unconcerned, arguing that the headline GDP figure was skewed by big shifts in business inventories and international trade, components that often swing wildly from one quarter to the next. Consumer spending rose 2% — down from 3.3% in the fourth quarter.

Source: Apollo

The data does little to change the bigger picture. The economy has slowed but remains fundamentally sound, buoyed by consumer spending that remains resilient even after the latest revisions. That spending is supported by rising incomes and the result of a strong job market that features low unemployment and rising wages. There is still no sign that the recession that forecasters spent much of last year warning about is imminent.

Business investment, a sign of confidence in the economy, was actually revised up modestly in the latest data. Income growth, too, was revised up.

Inflation, however, remains stubborn. Consumer prices rose at a 3.3% annual rate in the first three months of the year, slightly slower than in the preliminary data but still well above the US Federal Reserve’s target of 2%.

In response, policymakers have raised interest rates to their highest level in decades and have said they will keep them there until inflation cools further. The modestly slower growth is unlikely to change that approach.