The U.S. economy grew at an annualized pace of 1.6% in the first quarter, missing estimates as inflation picked up

The US economy grew at its slowest pace last quarter as inflation topped Wall Street estimates.

Bureau of Economic Analysis A preliminary estimate of first-quarter US gross domestic product (GDP) The economy showed an annual growth of 1.6% During this period, economists surveyed by Bloomberg missed the 2.5% growth expected. The reading came in significantly lower than fourth-quarter GDP, which was revised up to 3.4%.

Meanwhile, the “core” personal consumption expenditure index, which excludes volatile food and energy categories, grew 3.7% in the first quarter, better than an estimate of 3.4% and significantly higher than the 2% gain seen in the previous quarter.

The release of the data comes as investors try to gauge when the Federal Reserve will begin cutting interest rates and whether the central bank can achieve a soft landing when inflation falls to its 2% target without a significant economic slowdown.

“The report pours cold water on false narratives of a re-accelerating economy,” EY chief economist Gregory Dago wrote in a research note following the printout. “As we enter spring, the underlying growth mix signals strong momentum, but a slow cooling in demand growth eases inflationary pressures.”

Economists pointed out that a big reason for the softer-than-expected GDP arrival in the first quarter was weaker data on trade and exports, which weighed down GDP growth for the quarter by about 1.2 percentage points.

“A slowdown in GDP growth shouldn't worry the Fed because the details are better than the headline suggests,” said Ryan Sweet, chief U.S. economist at Oxford Economics.

“The headline number really belies underlying strength,” Deutsche Bank senior U.S. economist Brett Ryan told Yahoo Finance.

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Ryan said he expressed no overall concern about a possible slowdown brewing in the U.S. economy and hoped that parts of GDP such as inventories and exports would rebound in the next quarter.

He noted that the surprise rise in inflation was the “big story” from Thursday's data release and markets seem to agree.

The 10-year Treasury yield ( ^TNX ) added nearly seven basis points to above 4.7% for the first time since early November 2023. All three major indices fell after the release. In morning trade, the S&P 500 (^GSPC), the Dow Jones Industrial Average (^DJI) and the Nasdaq Composite (^IXIC) were all off more than 1%.

“The recent firming of inflation will keep interest rates higher for longer,” Sweet wrote.

April 2, 2023;  Dallas, TX, USA;  A general view of the American flag on the court during the playing of the national anthem before the NCAA Women's Basketball Final Four National Championship game between the LSU Lady Tigers and the Iowa Hawkeyes at the American Airlines Center.  Mandatory Credit: Kirby Lee-USA TODAY Sports

April 2, 2023; Dallas, TX, USA; A general view of the American flag on the court during the playing of the national anthem before the NCAA Women's Basketball Final Four National Championship game between the LSU Lady Tigers and the Iowa Hawkeyes at the American Airlines Center. Mandatory Credit: Kirby Lee-USA TODAY Sports (USA TODAY Sports via Reuters Connect / Reuters)

Josh Shaffer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.

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