- Stronger-than-expected US economic growth in Q1 raises case for interest rate hikes
- Increased consumer spending and exports contribute to revised growth estimate
- Inflation concerns persist despite slower growth rate, economists weigh in
Economic growth in the United States was stronger than previously reported at the beginning of the year, which could strengthen the case for raising interest rates in the world’s largest economy.
In the first three months of the year, the US economy expanded at an annual rate of 2%, according to the Commerce Department.
The initial estimate for growth from January to March was 1.1%.
The increase reflected greater consumer expenditure than was previously estimated.
The US central bank has been attempting to chill the economy to alleviate the price-inflationary pressures.
Since March 2022, it has increased its key interest rate by five percentage points, to more than 5%, and signaled that further increases are forthcoming.
As higher interest rates impinge on economic activity, such as spending and business expansions, the moves sparked concerns that they could cause a painful slowdown.
Earlier this year, many businesses voiced concerns about the prognosis, but hiring has remained robust and other data has painted a more optimistic picture.
In addition to increased consumer spending, the Commerce Department reported on Thursday that exports were also higher than previously estimated.
“The narrative on growth shifts once more. In response to the report, Diane Swonk, chief economist at KPMG in the United States, tweeted, “Few indications of a slowdown.”
According to analysts, the report did not alter the overall inflation picture. According to the Labour Department, consumer prices in the United States rose 4% in the year leading up to May. This was the slowest growth rate in the past two years, reflecting the decline in fuel prices since last year’s surge.
However, the costs of numerous other items have continued to rise. Core inflation, which excludes energy and food and is considered by economists to be a superior indicator of underlying pressures, was 5.3%.
At a meeting in Europe this week, the chairman of the Federal Reserve, Jerome Powell, stated that the current anti-inflation policy was insufficient.
“Although the policy is restrictive, it may not be restrictive enough, and it has not been restrictive for long enough,” Mr. Powell said in Portugal during a panel hosted by the European Central Bank.
Scott Hoyt, senior director at Moody’s Analytics, predicted that despite the Fed’s focus on fighting inflation, the economy would struggle but prevent a complete decline.
“The economy remains remarkably resilient, and the likelihood of a recession starting this year is diminishing. However, the situation is far from obvious,” he said.
