Benzinga - by Piero Cingari, Benzinga Staff Writer.
The U.S. economy grew at an annualized rate of 1.3% in the first quarter of 2024, marking a downward revision from the advance estimate of 1.6%.
This represents the slowest growth rate since the second quarter of 2022. The revision was primarily driven by a decrease in real consumer spending, which was adjusted down from 2.5% to 2%.
The GDP report from the Bureau of Economic Analysis, released Thursday, also indicated a slight downward adjustment of 0.1 percentage points in both the headline and core Personal Consumption Expenditure (PCE) price index for the last quarter.
The slower-than-expected growth and marginally lower inflation figures eased Treasury yields, with the 10-year benchmark note falling 5 basis points to 4.57%. This drop sent bond ETFs higher, with the iShares 7-10 Year Treasury Bond ETF (NASDAQ:IEF) rising 0.4%.
The critical question remains whether these developments will ease the pressure on the Federal Reserve to cut interest rates, or if further inflation reports are needed to gain a more comprehensive understanding of economic dynamics.
5 Economists React To Q1 GDP, PCE Data
But it also suggests that inflation is declining. This could eventually allow the Fed to reduce interest rates. Inflation will likely remain “relatively sticky” and the Fed will stay on the sidelines for most of 2024. Still, Zaccarelli remains optimistic about corporate profits and an ongoing bull market for stocks.
Revisions to economic growth and inflation might prompt the Fed to consider reducing interest rates by September. Adams also highlights that a cooler economy is limiting businesses’ ability to raise prices, which could help slow inflation in the second half of 2024.
“We had been saying for a while that we thought we’d get 2 cuts this year, September and December. But I would tend to say that we are becoming less confident about the start in September,” he said. He believes that once the Fed begins cutting rates, it could benefit stocks, particularly in interest-sensitive sectors like financials and real estate.
An acceleration in spending on services, where inflation remains hottest, was tempered by a ⬇️ in spending on goods. This echos challenges retailers cite. Big ticket durable goods, which require financing, contracts the most. Credit card usage flatline, as subprime & young…— Diane Swonk (@DianeSwonk) May 30, 2024
Swonk suggests that inflation improvements in late 2023 were overstated and that inflation remains a significant issue. “The net result is that inflation is still too hot for too many, which is keeping the Federal Reserve from cutting rates.”
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