US 1Q GDP ‘-1.4%’… below market expectations
Fed’s pressure on austerity tightening rises
However, there are also observations that austerity measures such as a rebound in the second quarter will continue.
Jerome Powell, chairman of the US Federal Reserve. Washington = AFP Yonhap News
As the US gross domestic product (GDP) grew unexpectedly in the first quarter, the US central bank, which was accelerating the pace of tightening, became heavier. This is because, although strong austerity measures were foretold in order to catch the highest inflation in 40 years, the pressure has grown as the economic recession has already appeared.
According to the U.S. Department of Commerce on the 28th (local time), the U.S. GDP growth rate in the first quarter of this year was -1.4%. This was not only below the market expectation (1%), but also the negative growth recorded for the first time in about two years since the second quarter of 2020 (-31.2%) when the Corona 19 crisis occurred. Even compared to the growth rate of 6.9% in the fourth quarter of last year, it is a sharp decline.
As the economy recorded negative growth before the US Federal Reserve (Fed) pulled the reins of tightening properly, the market’s attention is focused on whether and how fast the key interest rate will be raised. The U.S. Federal Reserve is set to meet at the Federal Open Market Committee (FOMC) meeting early next month.
So far, market forecasts have prevailed that the Fed will carry out quantitative tightening at the same time as the ‘big step’ of raising the key interest rate by 0.5 percentage points. However, the negative growth rate in the first quarter announced at the time the FOMC is imminent is deepening the Fed’s concerns. If the Fed continues its aggressive austerity measures as predicted, it could put a huge strain on the US economy. The economic growth rate of major world countries is also slowing down due to the prolonged war in Ukraine and the additional lockdown by China.
Hwang Se-woon, a research fellow at the Capital Market Research Institute, said, “It is difficult to avoid a contraction in consumption and a slowdown in the economy if the key interest rate is raised. “He said.
However, the prospect that the Fed will take a ‘big step’ as expected to catch the soaring inflation is still prevailing. In addition, some say that the US economic recovery has been confirmed to some extent in other economic indicators such as consumption, investment, and employment, so the Fed will not be burdened with raising interest rates. U.S. President Joe Biden also expressed confidence that “the growth rate in the first quarter was affected by technological factors,” and “we are not concerned about a recession.”
Heo Jin-wook, an analyst at Samsung Securities, said, “Although GDP declined in the first quarter, a large rebound is expected in the second quarter.”
Kim Jeong-hyun reporter virtu@hankookilbo.com
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