Washington (TIP)- The U.S. economy unexpectedly contracted in the first quarter amid a resurgence in COVID-19 cases and drop in pandemic relief money from the government, but the decline in output is misleading as domestic demand remained strong. The first decrease in gross domestic product since the short and sharp pandemic recession nearly two years ago, reported by the Commerce Department on Thursday, was mostly driven by a wider trade deficit as imports surged, and a slowdown in the pace of inventory accumulation. A measure of domestic demand accelerated from the fourth quarter’s rate, allaying fears of either stagflation or a recession. The Federal Reserve is expected to hike interest rates by 50 basis points next Wednesday. The U.S. central bank raised its policy interest rate by 25 basis points in March, and is soon likely to start trimming its asset holdings. “The economy is still showing some resilience, but the first-quarter GDP report signals the start of more moderate growth this year and next, largely in response to higher interest rates,” said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto. “Despite the contraction, the Fed has little choice but to hike aggressively in May to corral inflation.” Gross domestic product fell at a 1.4% annualized rate last quarter, the government said in its advance GDP estimate.

          Source: Reuters