US growth slowdown is blow for Biden

A SHOCK slowdown in the US economy and stubborn inflation has raised the prospect of stagflation gripping America in a blow for Joe Biden as he fights for re-election as president.

Stock markets in the US and Europe tumbled yesterday after new figures showed US growth slowed to 1.6pc in the first quarter of the year.

That was well below forecasts of 2.5pc and far below the 3.4pc economic expansion recorded in the final quarter of 2023. Worryingly, core inflation also accelerated to 3.7pc in the first quarter, up from 2pc previously and above the 3.4pc economists had anticipated. Traders are now betting that the Federal Reserve will only be able to cut interest rates from December, as officials led by Jerome Powell are forced to hold borrowing costs at 5.5pc for longer in an effort to crush inflation.

Ryan Sweet, at Oxford Economics, said: “The recent firmness in inflation will keep interest high for longer.”

It leaves President Biden facing the prospect of heading into November’s election with no help from lower bor- rowing costs.

The typical 30-year mortgage in the US now has an interest rate of more than 7.2pc. The toxic combination of slowing growth and still high inflation means “stagflation chatter will surely pick up,” warned Ian Lyngen at BMO.

The S&P 500, Dow Jones and Nasdaq indexes all fell more than 1pc on Wall Street. The Euro Stoxx 50 closed down 0.99pc, amid fears that persistent inflation will prove to be a global problem and not just confined to the US.

Meanwhile, Indermit Gill, chief economist of the World Bank, warned that global inflation was “undefeated” and risked keeping borrowing costs higher for longer.