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The weaker-than-expected U.S. GDP growth in the first quarter of the year could be revised higher, U.S. Treasury Secretary Janet Yellen pointed out during an interview on Thursday.
Earlier in the day, the Commerce Department issued its first estimate of Q1 gross domestic product growth at 1.6%, falling short of the 2.3% consensus and significantly slower than the 3.4% growth in Q4 2023. The most recent print, though, will get two more revisions, with the last made on June 27.
“The U.S. economy continues to perform very, very well,” Yellen said in an interview with Reuters. “The headline figure was off a little bit but for reasons that are peculiar and not really indicative of underlying strength.”
A decrease in private inventories and an increase in imports, which is subtracted from GDP, contributed to the slower pace, the Commerce Department said.
Still, investors were shaken by the hotter-than-expected inflation figures in the GDP report.
Yellen expects that to ease. “The fundamentals here are in line with inflation continuing back down to normal levels,” she said.
Investors are questioning that. Chris Zaccarelli, chief investment officer at Independent Advisor Alliance, called the report “the worst of both worlds: economic growth is slowing, and inflationary pressures are persisting.”
That has some fearing the return of stagflation, when inflation climbs, but the economy exhibits little growth.
“What I focus on most is the strength of consumer spending and investment spending,” Yellen said. “Those two elements of final demand came in line with last year’s growth rate.”
In addition, the labor market doesn’t have to weaken to achieve lower inflation, Yellen contended. “I don’t see any reason why unemployment needs to rise to bring inflation down,” she said. “To me, the data says we are on a downward path for inflation.”
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