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US economy expanded

April 27 2023

US GDP: Fed Is in a Tough Spot Trying to Navigate Slower Growth and Stickier Inflation – Validus Risk Management

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The US economy expanded at an annualized rate of 1.1% in the first quarter of 2023, according to the US Bureau of Economic Analysis’ (BEA) first estimate, released on April 27th. This figure is lower than the 2.6% growth recorded in the last quarter of 2022 and worse than the market expectation for a 2% expansion.

The report also revealed that the GDP Price Index edged higher to 4% in the same period from 3.9%, compared to the market expectation of 3.8%. Additionally, the Personal Consumption Expenditures (PCE) Prices rose to 4.2% from 3.7% on a quarterly basis.

According to the BEA, the increase in real GDP can be attributed to consumer spending, exports, federal government spending, state and local government spending, and nonresidential fixed investment. However, these gains were partly offset by decreases in private inventory investment and residential fixed investment, while imports increased.

Despite the disappointing GDP data, the US Dollar Index gained traction, climbing toward 101.70. A stronger-than-expected increase in the inflation component of the GDP, which could allow the Federal Reserve (Fed) to delay a policy pivot, appears to be helping the US Dollar find demand. The 2.26 percentage point negative contribution of the change in private inventories may also be making the GDP reading look worse than it actually is, as inventories tend to fluctuate.

Commenting on US GDP, Ryan Brandham, Head of Global Capital Markets, North America at Validus Risk Management, said: “US GDP came in at 1.1% – a weaker print than expected. The lagged effects of the 2022-23 US rate hiking cycle may finally be slowing growth. A mixed bag of data today points to slower growth and stickier inflation, and the Fed is in a tough spot trying to navigate these two forces.”

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Ryan Brandham

Validus Risk Management

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