The News
The US economy grew at a slower pace than predicted in the first quarter while inflation jumped, a weaker set of data that follows a surprisingly strong start to the year.
GDP data released Thursday showed the economy increased by an annualized rate of 1.6%, well below the 3.4% increase last quarter and lagging behind the 2.2% target projected by economists. Inflation increased by 3.7% compared to the 3.4% projection.
Experts said slowing personal consumption and decreasing exports are to blame for the cooldown. And while the economy remains strong, the perceived effects could have negative implications for President Joe Biden’s re-election campaign.
SIGNALS
Fed likely won’t touch interest rates in 2024
The Federal Reserve now faces “renewed pressure” to further delay interest rate when it meets next week, Bloomberg wrote, and policymakers may even consider “whether borrowing costs are high enough.” A cut in US interest rates is looking increasingly unlikely this year, as “the hot inflation print is the real story in this report,” a Fitch Ratings analyst said. The head of the Federal Reserve Bank of New York told Semafor last week that he doesn’t “feel urgency” to cut interest rates soon, and that the unchanged rates so far “haven’t caused the economy to slow too much.”
Consumers are still spending, but the picture is complicated
Consumer spending has slowed as people get pickier about purchases, but thanks to a strong job market and increasing wages, “Americans are still opening up their wallets, which is keeping the economy afloat for now,” CNN wrote. But the economic picture is still complicated, The Washington Post wrote, as high interest rates have made it expensive for families to borrow, leading home and car sales to cool. Households are using up the last of their pandemic savings and credit card debt has risen 22% since 2022. “We don’t think things are going to fall apart this year, but consumers are going to have to pause and do some hard thinking on how they’re spending their money,” one economist told the Post.
Biden loses footing over economic pessimism
Voters appear unimpressed with President Joe Biden’s economic record: He leads only in Michigan of the seven battleground swing states crucial to the 2024 election, according to a Bloomberg/Morning Consult poll this month. Most voters in those states said they are experiencing worsening economic conditions, with only one in five expecting inflation to cool. “People are really tying Bidenomics and their perception of the economy to the inflation rate,” said Matt Monday of Morning Consult. Biden had been counting on the economy to overtake Trump, but his “hopes of a pre-election rate cut were dealt a blow” by Thursday’s inflation and growth data, the Financial Times wrote.
