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The US economy grew less than expected for the first quarter of 2024, at an annualised rate of 1.6 per cent, but price pressures were more than expected.
The growth figure from the Bureau of Economic Analysis was far below analysts’ expectations of a 2.5 per cent rise and the revised rate of 3.4 per cent for the fourth quarter.
But inflation data released as part of the figures was higher than forecast, casting doubt on the potential for US Federal Reserve rate cuts.
Sameer Samana, senior global market strategist at Wells Fargo, described the released as “almost stagflationary, where you’ve got growth slowing but prices are still a little bit stickier than markets and the Fed had hoped for”.
US stock futures extended their declines and government bonds came under pressure after the data was released, with contracts tracking Wall Street’s S&P 500 initially down 1 per cent.
Yields on two year US Treasuries, which are sensitive to interest rate expectations and move inversely to prices, rose by 0.05 percentage points to 4.99 per cent as investors.
The sustained strength of the US economy has wrongfooted investors in recent weeks, setting back expectations of interest rate cuts and bolstering the dollar while hitting equities worldwide.
The robust US labour market and high levels of consumer spending had previously added to concerns that inflation will take longer than expected to bring down to the Fed’s 2 per cent target.
US President Joe Biden has been hoping the robust economy will help him overtake his Republican rival Donald Trump ahead of November’s election. But borrowing costs are still at a 23-year high, with traders trimming their bets on how many times the Fed will cut rates this year owing to persistent inflation.
This is a developing story
Source: Economy - ft.com
