U.S. Economic Growth Rebounds in First Quarter
The United States economy picked up momentum in the first quarter, recovering from weak activity in the previous period that was impacted by a government shutdown. At the same time, inflation pressures increased in March due to rising energy prices linked to the Iran conflict.
According to an advance estimate from the Bureau of Economic Analysis, gross domestic product (GDP) grew by 2.0% between January and March, up from 0.5% in the final quarter of 2026, though slightly below economists’ expectations of 2.2%.
Government Shutdown Distorted Previous Data
Analysts noted that the sharp slowdown in the fourth quarter was largely driven by last year’s 43-day government shutdown, which caused the biggest drop in federal spending since 1972.
In the first quarter, government spending rebounded, supported mainly by higher nondefense expenditures, including federal employee compensation. However, the BEA cautioned that spending patterns were still influenced by the earlier disruption.
AI Investment Supports Growth
A key driver of economic growth was continued investment in data centers, fueled by demand for artificial intelligence infrastructure. This helped offset softer consumer spending, which has weakened since the escalation of geopolitical tensions in late February.
Rising Energy Prices Weigh on Consumers
Energy costs surged during the quarter, pushing gasoline prices above $4 per gallon. The increase followed supply disruptions linked to the Iran conflict, particularly around the Strait of Hormuz—a critical channel for global oil flows.
Analysts at CIBC warned that higher fuel costs are likely to further slow consumer spending in the coming months.
U.S. Dollar Benefits from Safe-Haven Demand
Despite rising energy prices, some investors view the U.S. economy as relatively resilient due to its status as a major energy exporter. This perception has supported demand for the U.S. dollar as a safe-haven asset during the geopolitical crisis.
Inflation Accelerates in March
Inflation indicators showed a clear pickup. The personal consumption expenditures (PCE) price index, closely watched by the Federal Reserve, rose 3.5% year-on-year and 0.9% month-on-month in March, both in line with expectations but higher than the previous month.
Core Inflation Remains Elevated
Excluding food and energy, core PCE inflation increased to 3.2% annually, up from 3.0% in February.
On a quarterly basis, core PCE rose to 4.3% in Q1, compared to 2.7% previously, exceeding expectations of 4.1%. Analysts described the reading as “uncomfortably high,” signaling persistent inflationary pressure.
