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An unexpected decline in the US economy

The US economy showed an unexpectedly sharp slowdown in the first quarter of 2022, so these numbers do not yet reflect the effects of Putin’s invasion of Ukraine.

The US economy contracted 0.4% in the first three months of the year, down 1.4% year on year, the worst result since the pandemic began.

This is also surprising because the country recorded 6.9% GDP growth in the last three months of 2021. Analysts then predicted 1.1% growth by early 2022.

According to the Commerce Department, the slowdown is due to a larger-than-expected deficit in foreign trade and a decline in federal and state investment.

Consumer spending rose 0.7% in the first quarter, despite the ongoing coronavirus pandemic and sharp rises in food and fuel prices.

The data so far does not reflect the rise in oil prices due to the invasion of Ukraine and the problems affecting supply chains in the wake of China’s strategy to combat the spread of the virus.

Paul Ashworth, chief US economist at Capital Economics, told the Guardian he considered the economic contraction to be “unexpectedly severe”, but said the Fed would try to curb rising inflation by raising interest rates further.

Inflation was 7.9% in March, a 40-year record. The Federal Reserve raised interest rates to slow growth. The US Federal Reserve meets again next week and is expected to raise interest rates again.

Federal Reserve Chairman Jerome Powell suggested the central bank raise its key interest rate by 0.5 percentage point, doubling the increase in March.