Washington. The United States economy slowed sharply last quarter to a 1.6 percent annual pace in the face of high interest rates, but consumers — the main driver of economic growth — kept spending at a solid pace.

Thursday’s report from the Commerce Department said the gross domestic product — the economy’s total output of goods and services — decelerated in the January-March quarter from its brisk 3.4 percent growth rate in the final three months of 2023.

A surge in imports, which are subtracted from GDP, reduced first-quarter growth by nearly 1 percentage point. Growth was also held back by businesses reducing their inventories. Both those categories tend to fluctuate sharply from quarter to quarter.

By contrast, the core components of the economy still appear sturdy. Along with households, businesses helped drive the economy last quarter with a strong pace of investment.

The import and inventory numbers can be volatile, so “there is still a lot of positive underlying momentum,’' said Paul Ashworth, chief North America economist at Capital Economics.

The economy, though, is still creating price pressures, a continuing source of concern for the Federal Reserve. A measure of inflation in Friday’s report accelerated to a 3.4 percent annual rate from January through March, up from 1.8 percent in the last three months of 2023 and the biggest increase in a year. Excluding volatile food and energy prices, so-called core inflation rose at a 3.7 percent rate, up from 2 percent in fourth quarter 2023.

From January through March, consumer spending rose at a 2.5 percent annual rate, a solid pace though down from a rate of more than 3 percent in each of the previous two quarters. Americans’ spending on services — everything from movie tickets and restaurant meals to airline fares and doctors’ visits — rose 4 percent, the fastest such pace since mid-2021.

The economy’s gradual slowdown reflects, in large part, the much higher borrowing rates for home and auto loans, credit cards and many business loans that have resulted from the 11 interest rate hikes the Fed imposed in its drive to tame inflation.

Even so, the United States has continued to outpace the rest of the world’s advanced economies. The International Monetary Fund has projected that the world’s largest economy will grow 2.7 percent for all of 2024, up from 2.5 percent last year and more than double the growth the IMF expects this year for Germany, France, Italy, Japan, the United Kingdom and Canada.

Bank Indonesia (BI) raised its benchmark BI-Rate by 25 basis points to 6.25 percent on Wednesday. High US interest rates and escalating Middle East geopolitical tensions influenced this decision.

BI Governor Perry Warjiyo explained that high inflation and strong economic growth in the US had led to speculation of a smaller and more prolonged decline in the US Federal Reserve's benchmark interest rate (Fed Funds Rate/FFR). This aligns with statements from Federal Reserve officials. Additionally, the US's increasing debt requirements have caused a continuous rise in US Treasury yields and a stronger US dollar globally.

Looking ahead, BI will closely monitor risks associated with the direction of the FFR decline and global geopolitical tensions. These factors could lead to further uncertainty in global financial markets, increased inflationary pressures, and reduced prospects for global economic growth.