In the first quarter of 2024, the US economy grew at a slower rate than anticipated, with an annualized rate of 1.6% rather than the expected 2.5%. Despite this disappointing growth rate, price pressures were higher than expected.
This news led to concerns about the possibility of US Federal Reserve rate cuts, as inflation data raised doubts about the Fed’s ability to lower rates. 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.
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 a strong labor market and high levels of consumer spending in the US, concerns remain about bringing down inflation to the Fed’s 2% target. President Joe Biden hopes that a 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. Stay tuned for further updates on this unfolding story.
Sign up for free updates from myFT Digest to stay up to date with breaking news on the US economy.
The release of inflation data raised doubts about whether there would be any further interest rate cuts by US Federal Reserve in response to this disappointing growth rate of 1.6% annualized instead of analysts’ expectations of 2.5%. This figure was also below revised rate from previous quarter which was expected at 3.4%. However, despite this setback in economic growth rates, there were still price pressures that were higher than expected.
The disappointment among investors was palpable following this news release as it lowered their confidence in bringing down inflation levels to match Federal Reserve’s goal of keeping it at 2%. Despite this setback, President Joe Biden is hoping that a robust economy will help him win over voters in upcoming elections.
However, rising borrowing costs have become a concern for traders who are now adjusting their expectations for possible Fed rate cuts due to persistent inflation.
It is important for investors and traders alike to stay informed on how these developments unfold in order to make informed decisions regarding their investments portfolio