This week, all eyes were trained on the advance estimate of Real GDP for the first quarter of 2024. Market expectations were for growth to slow from the fourth quarter of 2023 pace of 3.4% to a more normal 2.5% rate. But growth came in at a pace much below even pessimistic forecasts at 1.6%, a marked deceleration in the rate of growth. The advance estimate is often revised, and we would expect it to be given the degree to which it underperformed expectations. Nonetheless, you go with the data you have, not the data you wish you had, to form your view on the health of the economy.
So, growth should likely continue to decelerate as the economy contends with high real interest rates. Inflation will continue to drift down, though incrementally and in fits and starts. This year's increase due to a hike in auto insurance premiums won't be repeated, and the price of shelter is due to relax as large amounts of new supply comes on line this year, further depressing prices. With the easy-to-tame inflation now tamed due to the easing of supply pressures, the harder-to-tame inflation is now the Fed's focus. This inflation is due to demand pressures, which are picking up globally and still robust in the United States. Higher interest rates are now working on these pressures and are pinching. Whether they are pinching enough to bring them to heel will bear watching over the next quarter.
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