The United States GDP for the first quarter was revised downwards to 1.3% year-on-year in the second estimate, down from 1.6% in the first estimate.
The second-estimate GDP gain of 1.3% was slightly better than the market estimate of 1.2% but much weaker than the 3.4% gain in the fourth quarter of 2023.
The BEA noted that the second estimate GDP report relied on more complete data than was available for the first estimate of 1.6%. The downward revision was attributable to weaker consumer spending, private inventory investment, and federal government spending.
Consumers have been squeezed by high interest rates and stubbornly high inflation. The Federal Reserve has maintained its interest rate target at 5.25% to 5.5% for six consecutive times but inflation has been sticky and rose 3.4% in April, compared to the March gain of 3.5%. The current inflation rate is well above the Federal Reserve’s inflation target of 2% and this has forced the Fed to delay plans to lower rates until inflation shows a significant decline.
The markets have priced in a 0.25% rate cut in September at a 50% chance, but the Federal Reserve continues to sound hawkish and has tried to dampen rate cut expectations. Federal Reserve members have reiterated that the Fed will remain patient and inflation needs to come down before the Fed feels confident that a rate cut will not result in a rebound in inflation. Earlier this year, the Fed signaled that it would lower rates as much as three times during the year but it is now possible that the Fed will wait until 2025 to cut rates. The Fed’s rate path will depend on key data, primarily inflation and employment numbers.
In the Forex market, the US Dollar is lower against most of the major currencies after the soft GDP release. The US Dollar’s sharpest decline came against the Japanese Yen, as the USD/JPY currency pair has fallen 0.63% on Thursday.
The US stock market is showing small losses at the start of the North American session. The S&P 500 Index is down by 13.36 points (0.28%) at 5,254.73.
The Nasdaq 100 Index has dropped by 62.98 points (0.34%) at 18,682.84.