U.S. economic growth slowed dramatically in first quarter of 2024, with inflation-weary consumers tightening their belts and spending less, the government reported on Thursday.

The figures published by the bureau of Economic Analysis showed gross domestic product rose at a 1.6% annualized clip during the first three months of the year, after increasing 3.4% in the fourth quarter of 2023.

The government's initial estimate fell well short of expectations, with economists surveyed by FactSet predicting GDP grew at a 2.2% rate last quarter.

"Growth momentum is evidently cooling off sharply from the stellar pace from the second half of last year and, while the U.S. exceptionalism story remains intact, we are starting to see cracks appear in the hard data."

Personal spending climbed 2.5%, and a measure of underlying inflation rose 3.7% in its first quarterly increase in a year, the data showed. 

 The numbers come ahead of the Federal Reserve's policy session next week. With the central bank expected to maintain interest rates at their current two-decade high, the latest data could delay future cuts. 

"This was an interesting mix of data signals, and the ultimate result is higher U.S. yields, lower equities and a stronger dollar," Kyle Chapman, FX Markets Analyst at Ballinger Group, stated. 

The report illustrating an economic slowdown amid stubborn inflation had stocks dropping sharply Thursday morning, with benchmark indexes down more than 1%.

Kate Gibson

Kate Gibson is a reporter for CBS MoneyWatch in New York.