US first quarter growth rate of 1.6%, significantly lower than market forecast… “Signs of stagflation”

Although the U.S. economic growth rate was significantly lower than expected, the core inflation rate was higher than expected, causing financial markets to fluctuate. Concerns about ‘stagflation’, where prices are rising but the economy is slowing, are beginning to rise.

On the 25th (local time), the U.S. Department of Commerce reported that the U.S. gross domestic product (GDP) growth rate in the first quarter was 1.6%, significantly lower than the market forecast (2.4%). Consumer spending in the first quarter increased by 2.5%, down from 3.3% in the previous quarter, the fourth quarter of 2023 (October to December). Consumer spending was also lower than the market forecast (3.0%), showing that the US economy, which had been nicknamed ‘growing alone’ and ‘no landing’, was weakening more than expected.

The weakness of the hot U.S. economy should lead to expectations of a decline in inflation, but today’s announcement showed that the inflation rate exceeded market expectations. The personal consumption expenditures (PCE) price index increase rate in the first quarter rose 3.4%, showing the largest increase in over a year. The ‘core PCE price index’, excluding highly volatile food and energy, was 3.7%, significantly exceeding the market forecast (3.4%). This figure significantly exceeds the 2% target inflation rate of the U.S. Federal Reserve.

As the economic growth rate was weaker than expected but the inflation rate soared, both the stock market and the bond market were greatly shaken. Immediately after the U.S. Commerce Department announcement, Dow Jones Industrial Average futures fell more than 400 points, down 1.1%, and Nasdaq index futures fell about 1.7%. Due to concerns that the Fed’s interest rate cut will be delayed, the interest rate on 2-year US Treasury bonds, which are sensitive to the Federal Reserve’s interest rate, exceeded 5%, and the interest rate on 10-year US Treasury bonds exceeded 4.7%.

New York = Correspondent Kim Hyun-soo [email protected]