US Economy Slows in First Quarter, Inflation Fears Spark Market Turmoil

The US economy grew at its slowest pace in two years in the first quarter, with prices rising at a faster rate, sending the markets into a tailspin on Thursday. This news has clouded President Joe Biden’s optimistic outlook for American households heading into his reelection battle.

According to data released by the Commerce Department, gross domestic product (GDP) grew at an annualized pace of 1.6% in the first quarter, below economists’ projections. This marked the lowest growth rate since 2022 and a significant cooldown from the previous quarters.

The personal consumption expenditures (PCE) price index excluding food and energy surged at a 3.7% rate in the first quarter, exceeding the Federal Reserve’s 2% target. This high inflation figure has raised concerns among investors and analysts, leading to a sharp decline in the Dow Jones Industrial Index.

Despite Biden’s attempt to spin the GDP data positively, experts believe that the underlying economy is solid but slowing from last year’s rapid pace. The rise in imports and strong demand for foreign goods indicate solid consumer demand, but the economy’s momentum is cooling.

With US debt surpassing $33 trillion for the first time ever and the debt-to-GDP ratio exceeding 100%, the Fed has warned that stubbornly high inflation could persist. The strong labor market, with a significant number of job gains in March, is expected to keep wages and consumer spending elevated, further fueling inflation and interest rates.

As a result, Wall Street is now anticipating two rate cuts by the end of the year, down from previous forecasts. Fed Chair Jerome Powell emphasized the need to allow restrictive policy more time to work and let the data guide future decisions.