Stay informed with free updates by signing up for the US economy myFT Digest, which is delivered directly to your inbox. The US economy grew less than expected in the first quarter of 2024, with a growth rate of 1.6 percent on an annualized basis. However, price pressures were higher than anticipated. The Bureau of Economic Analysis reported this figure, which fell far below analysts’ expectations of a 2.5 percent increase and the revised rate of 3.4 percent for the previous quarter.
Inflation data released alongside the growth figures exceeded forecasts, raising doubts about potential rate cuts by the US Federal Reserve. Sameer Samana, senior global market strategist at Wells Fargo, characterized the release as “almost stagflationary,” indicating slowing growth alongside stickier prices than anticipated by the markets and the Fed. As a result, US stock futures declined further and government bond prices came under pressure. Contracts tracking Wall Street’s S&P 500 initially fell by 1 percent, while yields on two-year US Treasuries rose by 0.05 percentage points to 4.99 percent due to investors’ increased interest rate expectations.
Despite recent strength in the US economy, investors have been caught off guard, as expectations of interest rate cuts have been delayed, leading to a rise in the dollar and impacting global equities. The strong US labor market and high consumer spending levels have raised concerns about inflation persisting above the Fed’s 2 percent target for longer than expected. President Joe Biden, seeking to benefit from a robust economy ahead of November’s election against Republican rival Donald Trump, faces challenges as borrowing costs remain at a 23-year high. Traders are adjusting their expectations for Fed rate cuts due to ongoing inflation concerns, creating uncertainty about the economic outlook.