The US economy grew steadily but less robustly than anticipated during the first quarter this year, the government reported today, while inflation added momentum that may be worrisome for Federal Reserve policymakers.
The Commerce Department said gross domestic product, or GDP, that measures total output within US borders expanded at a 4.2 per cent annual rate in the January-March three-month period - well under the 5 per cent rate forecast by Wall Street economists.
It followed growth at rates of 4.1 per cent in the fourth quarter and a sizzling 8.2 per cent in the third quarter last year.
But a key measure of inflation pressures based on personal consumption expenditures - the PCE price index excluding foodand energy that Fed Chairman Mr Alan Greenspan is known to monitor - virtually doubled. The price gauge climbed at a 2 per cent annual rate after gaining 1.2 per cent in the fourth quarter and 1 per cent in the third quarter.
Inflation-sensitive US Treasury bond prices seesawed, caught between the slower-than-expected GDP growth and the pickup in inflation. The dollar lost ground, apparently disappointed that the GDP number came in below forecasts.
The Fed's policysetting Federal Open Market Committee is meeting next Tuesday amid growing indications the US central bank is readying financial markets for higher rates, possibly later this year, to keep inflation in check as the expansion from the 2001 recession continues to gain strength.
The central bank is not expected to raise rates next week. However, it is likely to announce after Tuesday's meeting that it now sees economic risks balanced between rising prices and slower growth in the period ahead, effectively laying the groundwork for a future rate rise.