The US economy grew slower than expected in the first quarter, with an annualized growth rate of 1.6%, according to the preliminary estimate of Gross Domestic Product (GDP) released by the US Bureau of Economic Analysis.

This figure fell short of market expectations, as Bloomberg’s survey of economists had projected a 2.5% annualized growth rate for the US economy in Q1 2024. This data marks a significant decline from the fourth quarter GDP, which was revised upward to 3.9%.

Concerns about economic slowdown persist amidst the release of GDP data, largely attributed to the Federal Reserve’s implementation of tightening monetary policy and restrictive interest rate policies.

The lower-than-expected data suggests that the Fed’s historically high interest rates may be exerting pressure on consumers and the economy.

In the first quarter, personal consumption growth decreased from 3.3% in the previous quarter to 2.5%, falling short of economists’ expectations of 3% growth.

“The deceleration in real GDP in the first quarter primarily reflected downturns in consumer spending, exports, and state, local, and federal government spending,” noted the US Bureau of Economic Analysis in its report. “These downturns were partly offset by an acceleration in residential fixed investment.”

Earlier, the overall strong performance of the US economy in the first quarter had been a key point of discussion among economists and the Federal Reserve, illustrating why the Fed could maintain high interest rates while waiting for further declines in inflation.

Federal Reserve Chairman Powell stated on April 16th, “Given the strength of the labor market and progress on inflation, it is appropriate to allow restrictive policies more time to work and to let data and evolving conditions guide us.”

Meanwhile, this morning’s earnings report from META Corporation revealed lower-than-expected revenue, leading to a significant drop in its stock price. This development has raised concerns in the market, reflecting investors’ uncertainty about the company’s future performance and the overall economy.

Aimstar analysts suggest that the slower-than-expected growth of the US economy, coupled with META Corporation’s disappointing earnings forecast and subsequent stock price decline, highlight the challenges facing the current economy and market.

While Chairman Powell’s optimism about the labor market and inflation progress has allowed the Fed to maintain high interest rates for the long term, the latest lower-than-expected GDP and technology company earnings reports should prompt the Fed to consider the possibility of an economic slowdown, potentially bringing rate cuts and other interest rate policies back to the table.

However, the continued high inflation in the US poses a dilemma for the Federal Reserve. Friday’s release of the Fed’s preferred measure of inflation, the Personal Consumption Expenditures (PCE) index, will be closely watched by the market.

Even in the face of economic slowdown, suppressing inflation remains the Fed’s top priority, and investors may have to wait longer to see rate cuts if the PCE index disappoints.

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