REUTERS NEXT-Yellen: Subpar U.S. growth may get revised up, inflation will ebb

U.S. economic growth for the first quarter could be revised higher and inflation will ease to more normal levels, Treasury Secretary Janet Yellen told Reuters on Thursday after a clutch of "peculiar" factors held the economy to its weakest showing in nearly two years. "The U.S. economy continues to perform very, very well," Yellen said in an interview with Reuters, responding to the Commerce Department's substantially weaker-than-expected initial estimate for U.S. gross domestic product from January through March.

U.S. economic growth for the first quarter could be revised higher and inflation will ease to more normal levels, Treasury Secretary Janet Yellen told Reuters on Thursday after a clutch of "peculiar" factors held the economy to its weakest showing in nearly two years.

"The U.S. economy continues to perform very, very well," Yellen said in an interview with Reuters, responding to the Commerce Department's substantially weaker-than-expected initial estimate for U.S. gross domestic product from January through March. The report showed the economy grew at a 1.6% annualized rate - below the 2.4% estimated by economists and less than half the pace in the fourth quarter of 2023 - thanks to substantial drags from trade and private inventories. "What I focus on most is the strength of consumer spending and investment spending," Yellen said. "Those two elements of final demand came in in line with last year's growth rate ... so this is the underlying strength of the U.S. economy that showed continuing robust strength and an economy firing on all cylinders."

"The headline figure was off a little bit but for reasons that are peculiar and not really indicative of underlying strength." Indeed, a number of private economists said the GDP data likely overstated any weakness in an economy that had grown at above the rate most see as its potential for nearly two years, despite aggressive interest rate hikes over that span by the U.S. Federal Reserve aimed at quashing inflation.

The GDP report also confirmed earlier evidence that progress on lowering inflation took a hit in the first three months of the year. Yellen, however, said she does not see that as indicating that other areas of the economy - the job market in particular - need to weaken in order to return inflation to the Fed's 2% target. "The fundamentals here are in line with inflation continuing back down to normal levels," Yellen said.

"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." Other data on Thursday in fact showed little evidence of the labor market weakening. New claims for unemployment insurance last week dropped to a two-month low and the rolls of those continuing to draw benefits after their first week of aid dropped to the lowest since mid-January in the week ended April 13.

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