U.S. growth slows to 4-year low in first quarter

First-quarter gross domestic product expanded at an annual rate of 0.7 percent, the smallest gain since the fourth quarter of 2002, the Commerce Department said. That marked an upward revision the department's prior 0.6 percent estimate.

At the same time, a key gauge of nonfood, nonenergy inflation monitored closely by the Federal Reserve rose at a 2.4 percent pace, not the more-subdued 2.2 percent rate that had been thought earlier.

The data came only hours ahead of a decision by the Fed to hold benchmark interest rates steady at 5.25 percent. In announcing its decision, the Fed said it remained concerned about inflation, even as it took note of an easing in core prices since the first quarter.

U.S. government bond prices slipped on the announcement, as traders saw less likelihood the central bank would lower borrowing costs later in the year. U.S. stocks ended the day nearly flat and the dollar was steady against the euro.

"There's no reason to expect interest rates to move much from here," said Tom Sowanick, chief investment officer at Clearbrook Financial LLC in Princeton, New Jersey.

A Reuters poll of 17 top bond firms found that nine expect the Fed's next move to be a cut in interest rates, while five see a rate hike somewhere down the road.

JOB MARKET LOOKS STRONG

The Fed expressed concern the economy's "high level of resource utilization" -- such as its tight labor market -- could sustain inflation pressures.

The U.S. unemployment rate held at a low 4.5 percent in May and data on Thursday suggested the job market remains tight.