The U.S. economy started the year with its slowest pace of expansion since the second quarter of 2023. Despite this, the overall economic outlook remains positive, especially considering the Federal Reserve’s efforts to curb inflation that had led to a technical recession two years ago.
Real GDP increased by 1.6% in the first quarter of this year compared to the fourth quarter of 2023, according to data released by the Commerce Department. This growth rate was lower than the consensus economist estimates of 2.5% and well below the figures seen in the third and fourth quarters of 2023. Investors reacted negatively to the lower-than-expected GDP growth, with S&P 500 futures dropping more than 0.7% and earnings also impacting equity prices.
Despite these concerns, real GDP growth is an important indicator as it accounts for inflation and currency exchange differences. In contrast, nominal GDP only considers the dollar value of output. The U.S. economy’s steady growth is surprising given the concerns of minimal growth just a year ago when the Federal Reserve raised interest rates to combat inflation. Higher interest rates typically lead to economic downturns by making borrowing more expensive for consumers and businesses, but not in this case it seems that Fed’s efforts have paid off in keeping inflation under control while maintaining steady growth.