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US first quarter GDP slows more than expected, but inflation keeps rising

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2 years ago

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The economy is still solid, but growth is slowing, the latest GDP reading shows. (iStock)

U.S. gross domestic product (GDP) dropped faster than expected in the first quarter, but a key metric used by the Federal Reserve to measure inflation kept rising, according to the Bureau of Economic Analysis (BEA). 

Real GDP increased at an annual rate of 1.6% for the January-through-March period after rising 3.4% in the fourth quarter of 2023, according to the Bureau of Economic Analysis (BEA) advance estimate released Thursday. Economic forecasts had called for a deceleration of growth over the previous month, with the expectation that the economy would expand by 2.4%, according to a Reuters report.

Compared to the fourth quarter, the deceleration in real GDP in the first quarter primarily reflected decelerations in consumer spending, exports and state and local government spending and a downturn in federal government spending. This slowdown was partly offset by an acceleration in residential fixed investment.  

“We knew the economy was weaning itself off government support, we just didn’t figure that would cause GDP to drop this quickly,” said Robert Frick, Navy Federal Credit Union corporate economist. “With government spending down and consumer spending moderating as Covid-era supports disappear, GDP fell below all estimates. 

“But consumers continue to spend at a healthy rate, especially as evidenced by big spending on imports, which drove down the topline GDP number,” Fick continued. “First quarter GDP is often squirrelly and heavily revised – just look at last year’s – so all-in-all, this shouldn’t be taken as a fundamental downshift in the economy.”

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BIDEN WANTS TO GIVE HOMEBUYERS $400 PER MONTH: STATE OF THE UNION

Federal Reserve is in no hurry to cut rates

A slower economy is not likely to accelerate the timeline for interest rate cuts since core inflation continued to rise.  

The personal consumption expenditures (PCE) price index, excluding food and energy prices — a key metric the Federal Reserve tracks to measure inflation — increased by 3.7% after rising to 2% in the fourth quarter. 

“Inflation will likely resume its downward trend, slowly inching toward the Fed’s 2% target,” CoreLogic Chief Economist Selma Hepp said. “But, until the Fed gains greater confidence in the downward direction of inflation, it is not likely to lower rates and overall investments in the housing sector will stay tepid, as a result.”

Since July, the central bank has kept its policy rate in the 5.25% to 5.5% range. Following its March meeting, Fed Chair Jerome Powell said that interest rate cuts were still on the table for this year, but the central bank revised projections of rate cuts to just three this year. Powell said that the Fed remained committed to bringing inflation down to a 2% target rate and warned that lowering rates too soon would risk bringing inflation back while holding back too long posed a risk to economic growth. 

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HOMEBUYERS GAINED THOUSANDS OF DOLLARS AS MORTGAGE INTEREST RATES FALL: REDFIN

Americans are less worried about inflation, recession risks

Higher interest rates and borrowing costs have dampened consumers’ spending on bigger-ticket items like housing and cars. However, Americans have largely gotten used to higher prices and feel better equipped to handle their finances, according to a recent Santander survey.  

Additionally, worries about an economic recession have taken a backseat for many Americans as they begin to accept the high-interest rate environment as the new normal. The number of respondents who expected a recession in the next 12 months dropped from 69% to 60%.

However, consumers have had to make deep budget cuts to survive in a high-cost environment – 67% of respondents said they cut out significant purchases such as vacations, vehicles and home repairs, according to the survey.

“While middle-income households have had to navigate higher prices due to inflation, it is encouraging to see consumers taking positive steps to manage their finances and adjust their household budgets,” Santander CEO Tim Wennes said.

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HIGH HOMEOWNERS INSURANCE RATES SCARING AWAY FLORIDA HOMEBUYERS, OTHER STATES FACE THE SAME ISSUE

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Finance

Private Credit Expansion and Regulatory Oversight in 2026 Capital Markets

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6 days ago

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August 9, 2026

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The global private credit market has solidified its role as a fundamental pillar of enterprise finance, expanding rapidly across middle-market lending, asset-backed finance, and infrastructure financing. As non-bank financial institutions capture a larger share of corporate debt origination, global regulatory bodies are increasing oversight to evaluate market transparency and systemic risk interconnections.

Growth Drivers in Direct Lending
Direct lending platforms have continued to attract substantial institutional allocations from pension funds, sovereign wealth entities, and insurance companies seeking attractive risk-adjusted yields. Private debt funds offer corporate borrowers customized financing structures, faster execution timelines, and confidentiality compared to syndicated loan markets.

In 2026, private credit managers are increasingly financing larger corporate transactions, providing multi-billion-dollar credit facilities for buyout deals and corporate restructurings. The flexibility of private debt contracts—featuring unitranche pricing and tailored covenant packages—has made direct lending the preferred capital source for middle-market enterprise sponsors.

Regulatory Scrutiny and Systemic Risk Assessment
The rapid growth of non-bank intermediation has drawn heightened scrutiny from financial regulators in North America and Europe. Because private debt agreements are negotiated privately without public exchange disclosures, central banks are evaluating potential vulnerabilities related to asset valuation consistency and fund liquidity profiles.

Regulatory agencies are introducing guidelines aimed at improving reporting standards for private investment vehicles managing institutional assets. Key focus areas include monitoring leverage ratios within private credit funds and evaluating indirect credit exposures between commercial banking institutions and private debt funds.

Navigating Elevated Refinancing Costs
With benchmark interest rates remaining elevated, private debt borrowers face higher debt service obligations on floating-rate credit facilities. Financial advisory firms report an increase in proactive liability management strategies, including payment-in-kind (PIK) interest options, equity infusions from sponsors, and covenant modifications.

Private credit managers with deep operational capabilities are actively working alongside portfolio companies to optimize working capital and maintain cash flow coverage ratios during periods of higher borrowing costs.

Key Financial Takeaways
1. Mainstream Asset Class: Private credit has expanded beyond niche alternative asset status into a core corporate finance solution.
2. Enhanced Transparency Standards: Regulatory frameworks are evolving toward greater disclosure requirements for private debt managers.
3. Proactive Risk Management: Lenders and sponsors must prioritize debt sustainability and active portfolio monitoring amid high benchmark rates.

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Finance

Venture Capital and Startup Valuations in 2026: Focus on Unit Economics and Sustainable Growth

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1 week ago

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August 5, 2026

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The global venture capital (VC) ecosystem is operating under a disciplined investment framework in 2026. Following years of valuation adjustments and shifting liquidity environments, venture capital firms and private equity investors are prioritizing proven unit economics, positive cash flow pathways, and capital efficiency over rapid, unconstrained user acquisition.

The Shift Toward Disciplined Startup Valuations
Early-stage and growth-stage startup valuations have stabilized at sustainable historical averages. Venture capital partners are conducting rigorous due diligence processes before deploying capital, scrutinizing gross margins, customer acquisition costs (CAC), net revenue retention (NRR), and lifetime value (LTV) metrics.

While total capital deployed remains robust, seed and Series A funding rounds are taking longer to finalize. Founders are expected to demonstrate clear product-market fit and defensible intellectual property rather than relying on top-line revenue projections unsupported by strong underlying economics.

M&A Activity and Liquidity Solutions
The market for venture-backed exits is seeing renewed momentum through strategic mergers and acquisitions (M&A) and secondary market liquidity facilities. Established corporate enterprises are acquiring high-performing technology startups to integrate proprietary artificial intelligence models and specialized software solutions into their product ecosystems.

Simultaneously, secondary market transactions have become an essential liquidity mechanism for early employees and institutional investors. Specialized secondary funds are purchasing pre-IPO shares at discounted valuations, providing liquidity opportunities while companies remain private for longer durations.

Sector Allocation: Deep Tech, Clean Energy, and Enterprise Automation
Venture capital investment is heavily concentrated in deep technology and capital-intensive engineering sectors. High-growth investment themes include:
– Next-Generation Semiconductors: Hardware startups designing specialized AI processors and energy-efficient microchip architectures.
– Clean Technology: Battery chemistry innovations, carbon capture solutions, and grid-scale energy storage startups.
– Enterprise Process Automation: Software platforms that automate complex workflows in healthcare, financial services, and industrial logistics.

Key Insights for Entrepreneurs and Investors
1. Prioritize Capital Efficiency: Startups focused on achieving operational profitability receive higher valuation premiums from institutional investors.
2. Strategic Exit Planning: Corporate M&A is serving as a primary exit route for venture-backed startups navigating prolonged IPO windows.
3. Focus on High-Moat Technologies: Deep tech and proprietary software architectures are securing the majority of growth-stage capital allocations.

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Finance

The Evolution of Digital Payments: Cross-Border Settlement and Central Bank Digital Currencies in 2026

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1 week ago

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August 5, 2026

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The infrastructure supporting global commerce is undergoing a major technological upgrade as real-time digital payment rails, cross-border settlement solutions, and Central Bank Digital Currency (CBDC) pilot programs achieve widespread commercial adoption. Financial institutions and fintech developers are reimagining payment processing to eliminate friction, lower transaction fees, and accelerate settlement speed.

Transforming Cross-Border Settlement Infrastructure
For decades, international corporate payments relied on legacy correspondent banking networks characterized by multi-day settlement delays, opaque fee structures, and high foreign exchange markups. In 2026, modern cross-border payment networks are enabling near-instantaneous settlement for international trade transactions.

Financial technology platforms are leveraging distributed ledger technology and real-time gross settlement (RTGS) interconnections to settle transactions in seconds. International trade participants benefit from reduced working capital requirements and minimized foreign exchange volatility risks during cross-border transfers.

Commercial Expansion of Central Bank Digital Currencies
Central banks representing major global economies are advancing CBDC initiatives from research phases into active commercial deployment. Wholesale CBDCs—designed specifically for interbank settlement and financial institution clearing—are demonstrating substantial efficiency gains in domestic and international transactions.

At the retail level, several nations have introduced public digital currency options alongside existing commercial banking networks. These sovereign digital payment channels aim to expand financial inclusion, lower consumer transaction fees, and improve the efficiency of government-to-citizen financial disbursements.

Open Banking and Embedded Finance Ecosystems
Alongside settlement infrastructure upgrades, open banking regulations and embedded finance frameworks are transforming merchant-consumer interactions. Commercial businesses across retail, travel, and business-to-business (B2B) services are integrating seamless payment APIs directly into their customer software interfaces.

Through open banking frameworks, consumers can initiate secure bank-to-bank payments without relying on traditional credit card networks, significantly reducing merchant processing fees. Integrated Buy-Now-Pay-Later (BNPL) options and point-of-sale credit facilities continue to expand, driving higher conversion rates for digital commerce platforms.

Strategic Financial Takeaways
1. Treasury Optimization: Corporate treasurers should leverage instant cross-border payment platforms to minimize liquidity buffers and foreign exchange exposure.
2. CBDC Integration: Financial institutions must prepare internal core banking systems to interface with emerging wholesale CBDC payment rails.
3. Merchant Fee Reduction: Enterprise merchants can lower payment processing overhead by adopting account-to-account (A2A) open banking checkout solutions.

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