By Lucie Mutikani
WASHINGTON (Reuters) – U.S. economic growth likely slowed to a still solid pace in the first quarter while inflation accelerated, reinforcing financial market expectations that the Federal Reserve would postpone interest rate cuts until September.
The Commerce Department’s first-quarter gross domestic product preview released Thursday is expected to show that consumers continue to do the heavy lifting for the economy, thanks to a resilient labor market. The economy has defied doomsday prophecies since late 2022 following the U.S. central bank’s aggressive rate-hike campaign to quell inflation.
The United States outperforms other advanced economies. Economists say consumers locked in lower mortgage rates, while businesses refinanced their debts before the tightening cycle began. Companies are also hoarding workers after experiencing difficulty finding labor during and after the COVID-19 pandemic, and enjoying higher profits due to their strong pricing power.
“They have been relatively protected from rate hikes,” said Richard de Chazal, a macro analyst at William Blair. “In previous economic cycles, at the first signs of an economic downturn, American companies would lay off their employees very quickly and then know that they could rehire them very quickly once the cycle reversed.”
Gross domestic product likely grew at an annualized rate of 2.4% last quarter, according to a Reuters survey of economists. Estimates ranged from a pace of 1.0% to a rate of 3.1%. The economy grew at a pace of 3.4% in the fourth quarter.
It is growing at a rate higher than what Fed officials consider a non-inflationary growth rate of 1.8%. The International Monetary Fund last week revised its U.S. growth forecast for 2024 upwards to 2.7% from 2.1% forecast in January, citing higher-than-expected jobs and consumer spending.
Job creation in the first quarter averaged 276,000 per month, compared to an average of 212,000 for the October-December quarter.
The job market’s resilience will likely be underscored by the Labor Department’s weekly jobless claims report, which is expected to show first-time jobless claims rose by 3,000 to 215,000 seasonally adjusted. during the week ending April 20. Range 194,000-225,000 this year.
Low layoffs are keeping wage growth high, supporting consumer spending, which accounts for more than two-thirds of economic activity.
Even though inflation has likely increased, with the Personal Consumption Expenditures (PCE) price index excluding food and energy expected to rise at a rate of 3.4% after rising at a pace of 2.0% in the fourth quarter, economists are not worried about a resurgence of price pressures.
RATES STILL EXPECTED
The so-called core PCE price index is one of the inflation measures tracked by the Fed for its 2% target. The central bank has kept its policy rate within a range of 5.25% to 5.50% since July. It increased the overnight benchmark interest rate by 525 bases…
