Highlights
The Commerce Department said yesterday morning the US economy’s gross domestic product increased at a 1.6% annualized rate in the first quarter of 2024, less than half the growth rate of the 4th quarter of 2023. The market expected a 2.4% growth rate.
The first quarter growth's pace was below what the Federal Reserve regards as non-inflationary growth rate of 1.8%. It was the poorest GDP since the recession ended after the first two quarters of 2022. This GDP number clearly shows businesses are reducing production plans as a result of the Fed’s decision to keep interest rates where they are deep into 2024. The disappointing GDP numbers give the Fed reason to reduce interest rates sooner rather than later.
However, yesterday’s inflation numbers showed a surge in the first quarter, with the personal consumption expenditures (PCE) price index increasing at a 3.7% rate after rising at 2% pace in the fourth quarter. The Federal Reserve’s target is a PCE price index of 2% before lowering interest rates.
Consumer spending grew at a 2.5% rate, slowing from the 3.3% growth pace rate in the fourth quarter.
The Federal Reserve is now faced with: