Economic growth hit the brakes in the first quarter

Growth in the U.S. slowed markedly in the first three months of the year, as the effects of high interest rates and lingering inflation took a toll on the economy.

The nation’s gross domestic product — the broadest measure of economic output — grew at an annual rate of 1.1%, the Commerce Department reported Thursday. The figure undershoots forecasters’ predictions of 1.9% growth, according to a survey by the data firm FactSet.

It’s a significant slowdown from the 3.2% growth rate from July through September of last year and the 2.6% rate from October through December. During the past year, the Federal Reserve has been hiking interest rates to slow economic growth in an effort to tame the highest inflation in four decades.

“Our base case is that the lagged and cumulative effects of restrictive policy will keep the economy growing at a below potential pace over coming quarters,” Rubeela Farooqi, chief U.S. economist at High Frequency Economics, said in a report.

Farooqi added, “But we see downside risk from lending activity resulting from recent bank failures, which will have an impact on business hiring and investment decisions and economic activity more broadly.”

Between January and March of this year, consumer spending, exports, federal, state and local government spending and fixed investment increased. A drop in residential fixed investment and a rise in imports pulled down GDP growth.

This is a developing story. The Associated Press contributed reporting.