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US economy grew by less than expected in Q1

But lingering inflation concerns could yet delay Fed interest rate cuts.

25 April 2024

US economic growth fell by more than forecast, from 3.4% in Q4 last year to - on-the-face-of-it – a sluggish 1.6% in the first quarter of 2024. This was well below forecast growth of 2.5%, with a much wider trade deficit accounting for -0.9% to the overall growth number as a result of the US importing goods to keep up with rampant consumer demand. And here is where Gross Domestic Product (GDP) shows it is not very useful side as an economic indicator.

The economy is still running relatively strong undoubtedly, and the core PCE price index shows that inflation is still running if not hot, then certainly warm. A PCE reading of 3.7% annualised is back to the levels seen last year and this alone will spook bond investors hoping for early rate cuts. Either way you cut the economic data this morning, a strong-ish economy that is not slowing down precipitously, coupled with persistent inflation data at the high end, does not augur well for risk assets in the short term, as it further extends the timeframe for rate cuts from the Federal Reserve to commence.

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Charles Hepworth

Investment Director
My Insights

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