Slower US Economic Expansion: First Quarter GDP Growth Disappoints Despite Federal Reserve Efforts to Curb Inflation

The U.S. economy began the year with its slowest rate of expansion since the second quarter of 2023, marking a significant slowdown from the rapid recovery seen in 2023. Despite this slower growth, the overall economic outlook remains positive, especially given the Federal Reserve’s efforts to curb inflation that had led to a technical recession two years ago.

Real GDP increased by 1.6% in the first quarter of this year compared to the fourth quarter of 2023, according to data released by the Commerce Department. This growth rate was lower than the consensus economist estimates of 2.5% and well below the figures seen in the third and fourth quarters of 2023. However, investors reacted negatively to the lower-than-expected GDP growth, with S&P 500 futures dropping more than 0.7% and earnings also impacting equity prices.

The U.S. economy’s nominal GDP in the first quarter was $28.3 trillion, reinforcing its position as the largest global economy. Real GDP growth is an important indicator as it accounts for inflation and currency exchange differences, which distinguishes it from nominal GDP that only considers the dollar value of output. Despite concerns about minimal growth just a year ago when the Federal Reserve raised interest rates to combat inflation, higher interest rates typically lead to economic downturns by making borrowing more expensive for consumers and businesses, which may explain why real GDP growth is not as high as expected despite steady growth overall