The Zhitong Finance App learned that the US economic growth slowed significantly in the first quarter, falling short of market expectations, raising concerns about the Federal Reserve's austerity policy. According to the latest data from the US Bureau of Economic Analysis, the annual growth rate of the US gross domestic product (GDP) is only 1.6%, far lower than the 2.5% previously predicted by economists. This growth rate was also significantly lower than the revised 3.9% in the fourth quarter of last year.

The market is generally concerned that the Federal Reserve's high interest rate policy may be curbing consumer spending and overall economic momentum. The US Bureau of Economic Analysis stated in its report: “Compared to the fourth quarter, the slowdown in real GDP growth in the first quarter was mainly due to a decrease in consumer spending, exports, and state and local government spending, as well as a decline in federal government spending. These changes have been partially offset by an acceleration in housing investment.”

Notably, the core personal consumption expenditure (PCE) price index — excluding the two highly volatile components of food and energy — grew at a rate of 3.7% over the same period. This figure exceeded expectations of 3.4% and was significantly higher than the 2% increase in the previous quarter, indicating that inflation remains stubborn.

The current state of the US economy has become a key argument for economists and the Federal Reserve to explain why high interest rates are maintained until inflation falls further.

Earlier, Federal Reserve Chairman Jerome Powell said on April 16 that given the strength of the labor market and the current pace of easing inflation, it is appropriate to maintain current restrictive policies, let time verify their effects and guide policy decisions with actual data and changing economic prospects.

Furthermore, the economic slowdown this quarter reflected weak household and government spending, as well as a decline in exports, which hampered overall economic growth. Ben Ayers, a senior economist at the National Bank, pointed out that despite the slowdown in economic growth, strong job market performance and income growth supported consumers' spending capacity, which had a positive impact on curbing the continuing high rate of inflation.

The steady recovery of the economy was supported by continued household and government spending, as well as increased consumption in the service sector, particularly in the travel and catering sector. However, due to the Federal Reserve's 11 consecutive rate hikes, borrowing costs for households and businesses have risen, which has had a negative impact on some parts of the economy, such as the real estate market.

However, as many American households have exhausted their savings during the pandemic and increased their debt, credit card and car loan delinquency rates are rising, particularly among young and low-income groups. These factors may cause consumer spending to slow in the coming months, further affecting economic growth.

In this context, many families have begun to re-evaluate their spending habits, especially when it comes to dining and everyday shopping. For example, many families have reduced the frequency of eating out and are instead preparing more affordable home-cooked meals at home while using more frozen and canned food to reduce expenses.

Overall, the interlacing of this series of economic indicators shows that, despite facing multiple challenges, the path of the US economy is still full of uncertainty. The Federal Reserve's policy direction will be the focus of market attention in the coming months, especially after observing more economic data.