30 April 2026
If you are covering the latest US GDP and PCE inflation data, please see the following comment from Lindsay James, investment strategist at Quilter:
“Markets have a bumper day to contend with as the three key central banks have now delivered their interest rate decisions, and the latest snapshot of the US economy has followed closely behind. US GDP rose 2% in the first quarter of the year, a sharp uplift compared to the 0.5% growth seen in the final quarter of last year – albeit slightly lower than had been expected. While this is certainly a solid outturn given the number of headwinds, much of this growth comes from the rebound in government spending after the lengthy shutdown, and it could be rapidly dampened by the Iran war impacts.
“Meanwhile, PCE inflation came in at 3.5% on an annual basis in March, up from 2.8% in February, and rose to 0.7% from 0.4% on a monthly basis. Core PCE, the Federal Reserve’s preferred inflation gauge, climbed to 3.2% from 3.0% previously. With wage growth of 3.3% now below the PCE inflation rate, those Americans who have not benefitted from roaring stock markets and property prices will be seeing their spending power coming under pressure. Tariffs continue to be passed through to consumers, gas prices are rising sharply just ahead of driving season, and AI is – at best – reconfiguring the jobs market. It is little wonder that consumer surveys indicate sentiment is at a record low despite resilient retail sales figures, which are being propped up by those with higher incomes, suggesting otherwise.
“The surge in capital expenditure from the tech sector on data centres, which has accelerated further in recent earnings announcements, has sheltered US GDP growth from this bifurcation and accounts for around one quarter of GDP growth on conservative estimates. For now, an environment of light touch regulation combined with the enormous pace of growth in this sector throws other issues into the shade. However, it is another reminder of the reliance of not only US indices but also the US economy on the ongoing success, and spending, of AI.
“Looking ahead, the Fed appears set on a steady path of interest rate holds for the time being. While Fed Chair nominee Kevin Warsh will be determined to lower interest rates in the longer run, in the current climate there is little scope to act.”
