Economic Growth Rate Falls Below 2% in U.S., Giving Federal Reserve Room to Lower Borrowing Costs

The U.S. economy’s growth rate fell below 2% during the first quarter for the first time in over a year and a half, according to a new government report released on Thursday. Gross domestic product (GDP) expanded at an annualized rate of 1.6% in the first quarter of the year, lower than the 2.2% that economists had predicted.

After experiencing a strong 4.9% GDP growth rate in the third quarter of 2023, there has been a noticeable decline. This downward trend could be seen as a positive indicator for the Federal Reserve, as they aim for a strong economy without keeping prices too high. Inflation has slightly increased to 3.5% year-over-year in March according to the latest consumer price index (CPI) data from the Labor Department, which is below the peak it reached in June 2022 but higher than the central bank’s 2% target.

The unexpected rise in inflation, alongside data on the job market and GDP, has given the Federal Reserve room to potentially lower borrowing costs. The central bank committee had raised borrowing costs to a range of 5.25 to 5.5 percent in July after maintaining near-zero rates in March 2022.

The Federal Open Market Committee (FOMC) will review the latest growth report and other economic indicators when they meet next week to determine whether they will lower borrowing costs or maintain them. They will also consider the latest data on the Fed’s preferred inflation index, the personal consumption expenditures (PCE) index, set to be released on Friday