Source: Golden Ten Data
Although the US economy has slowed more than expected, accelerated inflation has caused traders to cut interest rate cuts.
Data released on Friday showed that the US economy slowed significantly in the first quarter due to increased inflation and cooling consumer and government spending.
The initial quarterly real GDP annualized rate for the first quarter of the US recorded 1.6%, the lowest since Q1 of 2023, far below the forecast of 2.4%. The previous value was revised up from 3.4% to 3.9%. The initial annualized quarterly rate of the US core PCE price index for the first quarter recorded 3.7%, a new high since Q2 2023, higher than the forecast of 3.4%. It rebounded sharply from the previous value of 2%. This is the first quarterly increase in a year. The initial quarterly rate of actual personal consumption expenditure in the US for the first quarter recorded 2.5%, falling short of the expected 3% and the previous value of 3.3%.
The yield on US Treasury bonds rose after the GDP data was released. The yield on US 10-year Treasury bonds rose to 4.70%, the highest level since November 2; the yield on US 30-year Treasury bonds rose to 4.81%, a new high since November 9 last year. The US dollar index rebounded 40 points after a short-term decline, erasing all declines after the release of GDP data and hitting the 106 mark upward. Spot gold once reached the 2,330 mark, then fell back nearly $20 from the daily high.
Institutional analysis indicates that US economic growth slowed more than expected in the first quarter, but accelerated inflation suggests that the Federal Reserve will not cut interest rates until September. Traders in the swap market have now postponed the Fed's first interest rate cut until December. It is estimated that the Fed will only cut interest rates by about 35 basis points for the whole of 2024, which is far lower than the rate cut of 25 basis points over 6 times they anticipated at the beginning of this year.
Despite the “collapse” of GDP data for the first quarter, Jeffry Bartash (Jeffry Bartash), a Washington correspondent on the US financial website MarketWatch, believes that the US economy is still strong. The lower than expected GDP growth rate in the first quarter was almost entirely due to widening trade deficits and weakening inventory accumulation. The widening trade deficit in the first quarter reduced GDP by 0.9 percentage points, while changes in inventory levels reduced GDP by 0.35 percentage points. Apart from these two categories, the GDP report was quite strong: consumer spending grew steadily by 2.5%, and corporate investment grew more than expected.
Adam Button, an analyst at the financial website Forexlive, also pointed out that with regard to the GDP data itself, wholesale inventory data may help explain some differences because the monthly US wholesale inventory rate in March, which was published at the same time as the report, fell by 0.4%. However, on the face of it, an annualized growth rate of 1.6% will not stimulate demand-driven inflation. As a result, the market may be focusing too much on tomorrow's PCE report and not enough on the economic slowdown and its impact on PCE reports in the coming months.
Analyst Taylor Giorno said that since reaching an astonishing 4.9% in the third quarter of 2023, the US GDP showed a clear downward trend. The GDP growth rate in the first quarter fell below 2% for the first time in more than a year and a half, which may be a positive sign for the Federal Reserve. The Federal Reserve wants the economy to stay strong, but not to the point where prices remain high.
Jeffrey Roach, chief economist at LPL Financial, said: “The economy is likely to slow further in the next few quarters as consumer enthusiasm is likely to end. Furthermore, as inflation continues to put more pressure on consumers, the savings rate is falling. We should expect inflation to ease somewhat this year as aggregate demand slows, but we are still far from the Fed's 2% target.”
Judging from the decline in US Treasury bonds after the data was released, investors are paying more attention to the signs of price sticking pressure in the US GDP data for the first quarter, which will further weaken expectations that the Federal Reserve will cut interest rates this year. Some observers are even worried that the Federal Reserve may restart interest rate hikes.
Bob Doll, chief investment officer of Crossmark Global Investments, said he doesn't think the Federal Reserve will raise interest rates, but judging from the performance of the US Treasury bond market, bond traders' concerns about interest rate hikes are heating up.
editor/tolk