Emmanuel OchayiAmid the ongoing inflation, the American economy grew slower in the first quarter of 2024 with strong consumer spending being driven by a job market that is expanding amid inflation.
But the year’s first quarter saw a slowdown in growth and an unanticipated spike in inflation. Notwithstanding this, analysts maintain their optimism, pointing to a strong economy and underlying demand.
After accounting for inflation, GDP growth for the quarter was 1.6%, a considerable drop from the 3.4% pace at the end of 2023. The main causes of the slowdown were changes in company inventory and global commerce. The fact that there are no symptoms of a recession and solid underlying demand has economists unmoved.
However, inflation quickened, with first-quarter consumer price increases of 3.4% annually. Prices increased 3.7% when food and energy were excluded. There are worries that the Federal Reserve’s attempts to rein in inflation may have stagnated in light of this spike.
It’s likely that the Fed won’t lower interest rates until at least the autumn and some analysts think they might even increase them. Customers, who are already suffering the burden of increased borrowing expenses, may be greatly impacted by this.
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Particularly impacted are households with lower incomes, many of whom resort to credit cards and fall behind on their payments.
Consumer spending is nevertheless strong despite these obstacles, mostly due to wealthier households with minimal debt and fixed-rate mortgages. The general state of the economy is still promising, with low unemployment, robust job growth, and growing salaries.
In addition to businesses investing in software and equipment, the housing market has recovered, albeit partially as a result of a brief decrease in mortgage rates.
The Fed’s primary weapon against inflation, high interest rates, has minimal impact on wealthy consumers while harming lower-class households, posing a dilemma for the U.S. economy. Rate cuts could cause inflation to pick back up speed.
Forecasters, however, are still upbeat, pointing to an unexpectedly bright economic picture in contrast to their projections from the previous year.
