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New data from the Bureau of Economic Analysis dashed dreams of a smooth economic exit in which the Fed tames inflation while avoiding a recession.

US real gross domestic product rose at an annualized rate of 1.6% in the first quarter, representing a significant drop from last quarter’s growth of 3.4%, writes Business Insider’s Madison Hoff.

The real GDP figure was well short of estimates — experts forecast a 2.5% increase — but not worrisome by itself. But inflation rearing its ugly head again proved problematic for the market.

One of the Fed’s favored inflation measurements, the core PCE price index, rose at a 3.7% annual rate in the first quarter, above estimates.

That data means the market will likely have to wait even longer for interest rate cuts, with relief potentially delayed until as late as 2025. It’s a shocking turnaround for a market pricing in six rate cuts for 2024 just a few months ago.

Fears of stagflation, when economic growth slows while inflation and unemployment rise, began to bubble up off the back of the report, writes BI’s Filip De Mott.

The economic condition, last seen in the US in the 1970s, is arguably worse than an actual recession. Stagflation’s issue is how difficult it is to manage. Cutting interest rates — a natural remedy during a recession — risks fueling inflation even higher during stagflation.

JPMorgan CEO Jamie Dimon alluded to the threat of stagflation in a recent interview with The Wall Street Journal.

Still, the job market remains relatively strong. And while inflation is a concern, the economy is much stronger than a typical stagflation scenario, Matt Miskin, co-chief investment strategist for John Hancock Investment Management, told me. (The Bureau of Economic Analysis releases its inflation data today, another closely watched datapoint.)

But the specifics don’t always matter to investors.

“You don’t have to get the definition perfectly right for the markets to trade that way,” he added.

Now, the economy will need some type of event (see: bubble popping) for rate cuts to become an option anytime soon, Miskin said.

“It likely cements a market rotation,” he added.

One prime candidate could be a sector that helped buoy the market for so long: AI.

Meta’s stock dropped Thursday despite a strong earnings report after outlining plans to invest “aggressively” in “AI research.” Mark Zuckerberg said it might be a while before returns on those investments are realized.

The tech giant likely won’t be alone in spending big to keep up in the AI race. And if investors aren’t willing to foot the bill, it could spell trouble for a wider market that has relied on the trend to keep its rally going.

🔔 Before the opening bell: Alphabet’s blowout earnings report helps US futures to surge in premarket trading.

2. These recruiters are helping Wall Street build out their tech armies. AI fever has hit the Street, and finance firms are eager to stock up on specialists. The top recruiters helping firms fill roles detail what they’re hearing from clients.

3. Guess what’s back. The World Bank said in a report on Thursday that global inflation could flare up again due to a recent rally in commodity prices. Energy price shocks could bring the world economy to a “vulnerable moment,” chief economist Indermit Gill warned.

2. Microsoft won’t stop splashing the cash on AI. In its own quarterly earnings report, the Redmond-based firm said it would continue investing in artificial intelligence and cloud services because of growing demand and a rise in average spending on its cloud platform, Azure. Microsoft shares rose 4% in early-morning trading.

3. VC firm Redesign Health is targeting $250 million in its latest fundraising push. With a model that’s half VC firm, half startup incubator, Redesign has launched more than 65 healthtech companies since 2018. Most recently, the firm landed $65 million in Series C funding.

2. Walmart’s boss charts how to rise to the top. In an interview with the Stratechery podcast, CEO Doug McMillon shared his top three tips for moving up the corporate ladder. He’d know, having started his 40-year career at the retailer making $6.50 an hour on the loading docks.

3. Meet 17 PR pros helping influencers grow their careers. Business execs aren’t the only ones who need PR guidance. Some of the most successful content creators across YouTube, Instagram, and TikTok are turning to these PR professionals to promote their work.

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Dan DeFrancesco, deputy editor and anchor, in New York. Jordan Parker Erb, editor, in New York. Hallam Bullock, senior editor, in London. George Glover, reporter, in London.

Get in touch. Email us at insidertoday@insider.com

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