Economy Grows 2% in Q1 — But Gas Hits a Four-Year High

The U.S. economy grew at a 2% annualized pace in the first quarter, the Commerce Department reported Wednesday — a respectable headline number that conceals a much messier story underneath.

Business spending on equipment and software rose more than 17% from the previous quarter, almost entirely driven by AI infrastructure buildouts. Strip that out and the rest of the economy is essentially flat.

The gas pump tells a different story

Regular unleaded now averages $4.30 a gallon nationally — a four-year high — according to AAA. Diesel, jet fuel, and natural gas are all climbing, the lagged consequence of the prolonged interruption of shipments through the Strait of Hormuz.

For working families, the macro abstraction of "GDP growth" is a poor consolation. A 12-gallon fill-up now costs about $9 more than it did at the start of the year. Heating oil and food costs — both heavily fuel-dependent — are following.

What the Fed is watching

Fed officials had been telegraphing a possible rate cut by mid-summer. The fresh inflationary pressure makes that calendar harder. Markets now price in essentially even odds of a cut by July, down from near-certainty a month ago.

"You can't claim a soft landing while Americans are paying $4.30 at the pump," said Sen. Bill Hagerty (R-TN), chair of the Joint Economic Committee. The April jobs report — due May 8 — will tell us whether the Q1 slowdown in hiring is a blip or a trend.