Slower-than-Expected US Economy Growth Raises Inflation and Investor Concerns

The US economy grew at a slower rate than anticipated in the first quarter of 2024, with an annualised rate of 1.6 per cent. This figure was below analysts’ expectations of a 2.5 per cent increase and the revised rate of 3.4 per cent for the previous quarter. Despite the disappointing growth rate, price pressures were higher than expected.

Following the data release, US stock futures declined and government bonds faced pressure. Yields on two-year US Treasuries rose, reflecting investors’ reaction to the news. The strong US economy has surprised investors, delaying expectations of interest rate cuts and strengthening the dollar while impacting global equities.

Despite the strong labor market and high levels of consumer spending in the US, concerns remain about bringing down inflation to the Fed’s 2 per cent target. President Joe Biden hopes the robust economy will boost his chances in the upcoming election, but borrowing costs are at a 23-year high and traders are adjusting their expectations for Fed rate cuts due to persistent inflation.

The release of inflation data raised doubts about the possibility of US Federal Reserve rate cuts. Senior global market strategist at Wells Fargo, Sameer Samana, described the situation as “almost stagflationary,” with slowing growth and sticky prices challenging the Fed’s hopes.

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