The US economy slowed sharply in the final quarter last year during a prolonged government shutdown and a decline in consumer spending.
Data released by the Commerce Department on Friday showed gross domestic product (GDP) grew at a 1.4 per cent annualised rate in the October-December period, well below the Dow Jones estimate of 3 per cent and a sharp slowdown from the 3 per cent pace in the previous quarter.
Consumer spending, which accounts for about two thirds of economic activity in the US, rose 0.4 per cent in December after increasing by a similar margin the previous month. When adjusted for inflation, consumer spending rose 0.1 per cent on a monthly basis.
Ahead of the report's release, President Donald Trump said the “Democratic shutdown cost the USA at least two points in GDP”.
“That’s why they are doing it, in mini form, again. No Shutdowns! Also, LOWER INTEREST RATES. “Two Late” Powell is the WORST!!!” he wrote on Truth Social, referring to Federal reserve chairman Jerome Powell.
At the same time, the Fed's preferred inflation heated up in December, further strengthening expectations that the Federal Reserve will not cut interest rates until the next quarter at the earliest.
Personal Consumptions Expenditure inflation grew at a 2.9 per cent annualised pace in December, the Commerce Department reported, slightly firmer than the Dow Jones estimate of 2.8 per cent. Core inflation, which strips food and energy, heated up to 3 per cent in December after 2.8 per cent in the previous month.
Traders overwhelmingly expect the Fed to hold rates steady at its next two meetings, while a rate cut in June is seen as a close call, according to CME Group data. The US central bank kept the range for its benchmark target at 3.50 to 3.75 per cent in January, a move mirrored by the UAE Central Bank because of the dollar peg.
The Fed cut its benchmark rate by 75 basis points last year on a weakening labour market but has since opted for a more cautious stance, as officials continue to monitor inflation risks.
Minutes released from the Fed's meeting in January revealed central bankers were split on the path forwards, with some suggesting the possibility of raising interest rates later this year if inflation remains stubborn.
