US Growth Slows While Inflation Holds Firm
The US economy grew at a slower pace in the first quarter while price pressures held firm, further complicating the outlook for central banks.
The Federal Reserve still expects to lower interest rates three times in 2024, a sign that officials were willing to take the latest inflation data in stride as they debate the timing of those cuts. The central bank decided on Wednesday to leave its benchmark rate unchanged, as expected, while an updated set of economic projections showed that policymakers continue to target three rate cuts of 25 basis points this year. However, the Fed estimated fewer cuts in the next two years than previously thought, as officials lifted their forecasts for economic growth and core inflation in the current year. In a press conference, Fed Chair Jay Powell reiterated that officials seek greater confidence that inflation is moving to their 2% target before taking the first step toward cutting rates, saying a strong economy and inflation’s fall from 40-year highs allow for a patient approach. It remains to be seen whether stubborn price pressures in recent months reflect a “bump on the road or something more,” Powell said.
A different scenario is playing out in Japan. The Bank of Japan raised interest rates for the first time since 2007 on Tuesday, ending an era of negative rates. The Japanese economy, which had long been plagued by deflation, has seen inflation return amid stronger wage growth and higher prices for imported food and fuel. Japan’s rate hike serves as the latest example of the uneven economic landscape globally, which may complicate the path for central banks and investors alike. In a new video, PGIM Fixed Income US Chief Economist Tom Porcelli discusses key takeaways from the Fed’s meeting and why policymakers remain on course to cut rates sooner rather than later.
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The US economy grew at a slower pace in the first quarter while price pressures held firm, further complicating the outlook for central banks.
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Persistent inflation in March put another dent in the case for rate cuts by the Federal Reserve.