U.S. Growth Snaps Back

GPD rose 4.8% last quarter, roughly matching estimates.
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Updated from 8:58 a.m. EDT

Growth returned in spades to the U.S. economy last quarter, with the Commerce Department's first reading on gross domestic product showing a 4.8% expansion, roughly matching estimates. The gain was the largest in two years but was largely in line with expectations and shouldn't radically alter perceptions about the future of interest-rate policy.

The first-quarter reading follows growth of 1.7% in the fourth quarter of 2005. A warm weather-fueled rebound in consumer spending, rebuilding in the hurricane-ravaged South, burgeoning business investment and steady progress on the services side of the economy helped pace the first-quarter pop.

On average, economists expected GDP to grow 4.9% in the first quarter.

"Wall Street's concern would be that this would be a stronger number than was expected," said Barry Hyman, equity market strategist with Ehrenkrantz King Nussbaum. "It's a good number for the market."

A gauge of wage inflation released simultaneously with the GDP report, the employment cost index, rose 0.6% in the first quarter, weaker than the 0.9% consensus forecast. A broader reading on inflation within the GDP data, the personal consumption expenditures index, rose 2% in the quarter; its core components also showed a 2% rise.

Stock futures had no reaction to either, with the

S&P 500

holding about a point below fair value. The Nasdaq 100 was set for a 9-point decline due to weakness in

Microsoft

(MSFT) - Get Report

.

The big driver of first-quarter growth was consumer spending, which rose at an annualized 5.5% last quarter, up from 0.9% in the fourth quarter of 2005. Business investment surged 14.3% between January and March, up from 4.5% in the previous three months.

"The details are close to our expectations, though consumers' spending, up 5.5%, was a bit stronger than we expected," said Ian Shepherdson, chief economist with High Frequency Economics. "Overall, solid domestic final demand, but the second quarter will be much weaker."

That growth reboundedn the first quarter should surprise nobody, including the

Federal Reserve

, which has predicted the turnaround in policy statements following its previous three meetings. Fed members have pledged to base monetary policy in coming months on incoming economic data like Friday's report.

On Thursday, however, Chairman Ben Bernanke suggested that he and his colleagues might contemplate a "pause" in their two-year-old tightening campaign because of the lag time embedded in most economic data. The comments raised hopes in financial markets that the Fed's next rate hike, expected in May, will be the last -- for a while, anyway.

"This reinforces what Bernanke said yesterday in his testimony," said Hyman. "This gives him ammunition to pursue the pause scenario."

Fed funds currently sit at 4.75%, having risen by 25 basis points after each of the Fed's last 15 meetings.