US revises Q1 GDP growth higher to 2.1% from 1.6%, markets rethink Fed rate cut bets

The United States economy expanded at a stronger pace than previously estimated in the first quarter, with GDP growth revised upward to an annualised rate of 2.1 per cent from the earlier estimate of 1.6 per cent, signalling better-than-expected economic momentum.

The upward revision was largely driven by a smaller drag from net trade, as imports came in lower than initial estimates. However, the report also showed a downward revision in consumer spending, a key driver of the US economy, highlighting mixed signals beneath the headline growth number.

The stronger GDP print has prompted investors to reassess expectations around the US Federal Reserve’s interest rate trajectory. A resilient economy may reduce pressure on the Fed to move aggressively toward rate cuts, especially as inflation indicators remain closely watched.

Core Personal Consumption Expenditures (PCE), the Fed’s preferred inflation gauge, stood at 3.4 per cent year-on-year in May, broadly in line with market expectations, while personal spending data came in stronger than anticipated.

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For global markets, the stronger US growth picture presents a mixed outlook. While robust economic activity supports risk sentiment, expectations of interest rates staying elevated for longer could influence foreign institutional investor (FII) flows into emerging markets, including India.

Higher US interest rates typically make dollar assets more attractive, potentially impacting capital movement into riskier assets. However, sustained US growth can also improve global demand expectations and support investor confidence.

Analysts believe markets will continue to track incoming inflation and labour market data for clearer signals on the Federal Reserve’s next policy move.

The revised GDP data indicates that concerns over a sharp slowdown in the world’s largest economy may have eased, though inflation pressures and consumer demand trends remain key factors shaping the outlook.