Understanding the Impact of Inflation on US Economic Growth and Rate Cut Expectations

The recent headlines highlight a significant slowdown in US economic growth to a nearly two-year low, accompanied by a spike in inflation rates exceeding expectations. This combination raises concerns about stagflation, leading to doubts about potential interest rate cuts by the Federal Reserve.

With inflation pressures persisting and growth decelerating, the Fed is cautious about reducing rates, impacting market expectations. The Fed's preferred inflation gauge, the Personal Consumption Expenditures index, has shown a persistent rise, exceeding Wall Street's expectations and dampening hopes for rate cuts this year.

As inflation remains above the 2 percent target, the Fed may postpone rate cuts, potentially reassessing future decisions and delaying any cuts until later in the year. Market experts suggest that rate cuts, if any, may not occur until late 2024, affecting investors' bets and stock market dynamics.