U.S. economic growth dipped below 2 percent during the first quarter for the first time in more than a year and a half, according to a government reading released Thursday.
Gross domestic product (GDP) grew at an annualized rate of 1.6 percent during the first quarter of the year, according to the Commerce Department’s Bureau of Economic Analysis (BEA), lower than the 2.2 percent forecasted by economists.
Since GDP growth came in at a surprisingly strong 4.9 percent rate during the third quarter of 2023, there has been a marked downward trend. That could be a positive sign for the Federal Reserve, which hopes the economy will stay strong, but not so strong that it keeps prices high.
Inflation has started to tick up again slightly to 3.5 percent year over year in March, according to the latest consumer price index from the Labor Department. That’s down significantly from June 2022, when annual inflation topped 9 percent, but above the central bank’s 2 percent target.
Unexpectedly hot inflation, job market and GDP readings have extended the runway for the Fed to cut borrowing costs, which a central bank committee hiked to a range of 5.25 percent to 5.5 percent last July from near 0 percent in March 2022.
The latest growth report is just one data point the Federal Open Market Committee will weigh when it meets next week to consider whether to cut borrowing costs or, more likely, hold rates steady. The BEA will also release the latest reading of the Fed’s preferred inflation gauge, personal consumption expenditures index, on Friday.
The U.S. economy has been surprisingly resilient, with 303,000 jobs added in the past month and the longest streak of sub-4 percent unemployment rate since the 1960s. And while economists were widely predicting a recession a year ago, many are now expecting the Fed to bring the economy in for a rare “soft landing.”
But high prices remain a top concern for voters in the upcoming 2024 presidential election, and the stubbornly high prices are proving a liability for President Biden’s reelection campaign even as he campaigns on the strength of the economy.