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STORY: The U.S. economy grew at its slowest pace in two years in the first quarter of 2024, while inflation surged.

That's according to the Commerce Department, which said Thursday that gross domestic product rose 1.6% in the first quarter, well below economists' estimates.

It was also less than half the 3.4% rate in the fourth quarter.

The Commerce Department also said a measure of inflation called the personal consumption expenditures - or PCE - price index excluding food and energy prices jumped to a rate of 3.7% in the first quarter, well above the Federal Reserve's 2% target.

The increase reinforced expectations the Fed will not cut interest rates before September.

High housing costs have contributed to price gains but in an exclusive interview with Reuters, Treasury Secretary Janet Yellen said she thinks these have peaked.

“I have no doubt that housing is going to its contribution is going to be falling over the coming year. That's the single most important contributor to inflation. And although we have a very good, strong job market, the labor market is doing very well. Not seeing evidence that the labor market is so hot that wage pressures are a source of inflation.”

Traders currently see about a 60% chance of a rate cut at the Fed’s September meeting, down from 70% Wednesday, according to the CME FedWatch Tool.