The first quarter saw the continuation of two interrelated trends, tightening credit conditions and slowing economic growth. With respect to the former, the Federal Reserve twice increased the overnight lending rate by twenty-five basis points during the quarter bringing the effective Fed Funds rate to 4.83% at the end of March, almost five hundred basis points above the year-prior level and the largest 12-month increase in the benchmark rate since 1982.
For the latter, annualized first-quarter real GDP growth, while positive, slowed from the fourth-quarter mark of 2.6% to just 1.1%. Despite this, labor market indicators, albeit lagging, remain strong with continued historically low unemployment with moderate but elevated levels of new unemployment insurance claims. With the Federal Reserve poised to “stay the course” on continued tightening of credit conditions, we expect aggregate growth to continue to slow through the rest of this year and into 2024 with continued elevated near-term recession risks.
