Federal Reserve Gains Room to Potentially Lower Borrowing Costs as US Economic Growth Slows Down

The U.S. economic growth rate fell below 2 percent during the first quarter for the first time in over a year and a half, according to a new government report released on Thursday. Gross domestic product (GDP) expanded at an annualized rate of 1.6 percent in the first quarter of the year, lower than the 2.2 percent that economists had predicted.

The decline in economic growth could be seen as a positive indicator for the Federal Reserve, as they aim for a strong economy without keeping prices too high. Inflation has slightly increased to 3.5 percent year-over-year in March according to the latest consumer price index (CPI) data from the Labor Department, which is below the peak it reached in June 2022 but higher than the central bank’s 2 percent target.

The unexpected rise in inflation, alongside data on job market and GDP, has given the Federal Reserve room to potentially lower borrowing costs. The central bank committee had raised borrowing costs to a range of 5.25 to 5.5 percent in July after maintaining near-zero rates in March 2022.

The Federal Open Market Committee (FOMC) will review the latest growth report and other economic indicators when they meet next week to determine whether they will lower borrowing costs or maintain them. They will also consider the latest data on the Fed’s preferred inflation index, the personal consumption expenditures (PCE) index, set to be released on Friday.

Despite concerns over high prices, the U