The US economy grew at an annual rate of 1.1 percent in the first quarter, a drop from the previous quarter due to inflation, rising interest rates, and banking issues. Consumer spending remained solid, but business investment and housing investment both slowed. Many economists expect the economy to cool further, with the possibility of a recession later in the year. The Federal Reserve and investors are closely watching the extent to which higher interest rates are affecting the economy. While the labor market remains strong, some consumers are reducing spending due to rising prices. Smaller companies are likely to be particularly vulnerable to a pullback in bank lending.