The US economy grew at its slowest pace in two years in the first quarter, while prices rose at a faster rate — sending the markets into a tailspin Thursday and clouding President Joe Biden’s sunny outlook for American households heading into his reelection battle.

The data released by the Commerce Department showed that gross domestic product (GDP) grew at an annualized pace of 1.6% during the three-month period ended in March — below the 2.4% projected by economists polled by The Wall Street Journal.

The growth rate was the lowest since 2022 and came in much lower than fourth-quarter GDP, which was revised up to 3.4%, and marked a cooldown from the quarter prior, when it was 4.9%.

More troubling was that prices have remained sticky.

Thursday’s data also showed the personal consumption expenditures (PCE) price index excluding food and energy — a key gauge watched by the Federal Reserve as it weighs whether to cut interest rates — surged at a 3.7% rate in the first quarter, versus the central bank’s 2% target.

Investors and analysts put more weight on the high inflation figure than on signs the economy may finally be cooling, which would generally encourage the Fed to cut rates.

The Dow Jones Industrial Index plunged nearly 700 points after the data was released as investors all but gave up hope on the Fed slashing the 23-year high rates more than one time this year — and most likely not until the fall.

The Dow pared some of the losses, closing down 375 points, or 1%. The S&P 500 was down 0.5%, and the tech-heavy Nasdaq dropped 0.6%.

Data from the CME Group’s FedWatch tool showed the probability of a Fed rate cut in June at 10% odds, with bets on a September cut slipping below 58%, and a second cut in December given less than even odds.

“This report comes in with mixed messages,” said Olu Sonola, head of economic research at Fitch. “If growth continues to slowly decelerate, but inflation strongly takes off again in the wrong direction, the expectation of a Fed interest rate cut in 2024 is starting to look increasingly more out of reach.”

The report on GDP, which represents the value of all goods and services produced within a given period, showed that American consumers remain strong after years of hiring and wage growth. Spending was driven by healthcare, financial services and insurance, which offset a decline in goods, including motor vehicles and gasoline.

Biden attempted to spin the GDP data in his favor, touting that “the economy has grown more since I took office than at this point in any presidential term in the last 25 years.”

Gregory Daco, chief economist at the tax and consulting firm EY, noted that the underlying economy looks solid, though its slowing from last years unexpectedly fast pace.

The rise in imports that accounted for much of the drop in first-quarter growth, he noted, is a sign of solid demand by American consumers for foreign goods.

Still, Daco said that the economys momentum is cooling.

Its unlikely to be a major retrenchment, he said, but we are likely to see cooler economic momentum as a result of consumers exercising more scrutiny with their outlays.

US debt has soared to $33 trillion, the highest ever, with the debt-to-GDP ratio topping 100% — at 123%, per the International Monetary Fund, which projects the ratio to reach 130% by 2035.

The Fed has warned that stubbornly high inflation could persist, especially given the resilience of the labor market, which added a whopping 303,000 positions in March.

Though many of the job gains were reportedly taken by migrants — who have been occupying a growing chunk of the US workforce — a strong labor market historically keeps wages and consumer spending levels elevated, thus fanning inflation and interest rates.

As a result, Wall Street is now widely expecting Fed officials to slash two times by the end of the year — down from the previous forecast that there would be three rate cuts totaling 0.75 percentage points.

“Given the strength of the labor market and progress on inflation so far, it’s appropriate to allow restrictive policy further time to work and let the data and the evolving outlook guide us,” Fed Chair Jerome Powell said on April 16.