The Unexpected Challenges for the US Economy in 2024: Price Pressures and Slow Growth Threaten Rate Cuts and Boost the Dollar

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In the first quarter of 2024, the US economy grew at a slower rate than expected, with an annualised rate of 1.6 per cent. This was lower than analysts’ predictions of a 2.5 per cent increase and the revised rate of 3.4 per cent for the previous quarter. Despite this, price pressures were higher than anticipated.

The release of inflation data raised doubts about the possibility of US Federal Reserve rate cuts, as senior global market strategist at Wells Fargo described it as “almost stagflationary”. With slowing growth and sticky prices challenging the Fed’s hopes, investors are now adjusting their expectations for rate cuts and bond yields are rising.

The strong US economy has surprised investors, delaying expectations of interest rate cuts and strengthening the dollar while impacting global equities. However, despite a robust labor market and high levels of consumer spending in the US, concerns remain about bringing down inflation to the Fed’s 2 per cent target. President Joe Biden hopes that this will boost his chances in the upcoming election, but borrowing costs are at a 23-year high and traders are now adjusting their expectations for Fed rate cuts due to persistent inflation. Stay tuned for further updates on this unfolding story.