The U.S. economy showed signs of weakness in the first quarter, with gross domestic product (GDP) expanding at a slower-than-expected rate of 1.6%, according to the Commerce Department's Bureau of Economic Analysis. Economists had anticipated a 2.4% growth following robust gains in the previous quarters.

Consumer spending, a key driver of economic activity, rose by 2.5%, falling short of the 3% estimate. However, fixed investment and government spending helped offset some of the slowdown. Yet, declines in private inventory investment and increased imports detracted from GDP growth, with net exports subtracting 0.86 percentage points.

Inflationary pressures intensified during the period, as indicated by a 3.4% annualized increase in the personal consumption expenditures price index. Core inflation, excluding food and energy, surged to a 3.7% rate, surpassing the Federal Reserve's 2% target.

The disappointing economic data triggered a market sell-off, with Dow Jones futures plummeting more than 400 points. Treasury yields rose, reflecting investor concerns about inflation and monetary policy. Federal Reserve Chair Jerome Powell may face pressure to adopt a hawkish stance at the upcoming Federal Open Market Committee meeting.

The outlook for monetary policy has shifted amid persistent inflation and economic uncertainty. Futures markets now anticipate rate reductions beginning in September, with only one or two cuts expected this year. Consumer spending may decelerate further as inflation erodes purchasing power, despite a buoyant labor market.

Amidst these challenges, there are some bright spots, such as a surge in residential investment, signaling potential strength in the housing market. However, the first-quarter GDP reading is subject to revisions, highlighting the uncertainty surrounding economic data interpretation.