The U.S. economy grew at its slowest rate in nearly two years as inflation flared up in the first quarter, dealing a setback to hopes that the Federal Reserve would begin cutting interest rates this year.

The advance estimate of U.S. gross domestic product grew at an annual rate of 1.6% in the quarter, according to data released Thursday by the Commerce Department. That's a drop off from the brisk 3.4% growth rate in the fourth quarter, and it was well below the 2.5% growth forecast by a consensus analysts.

Stocks tumbled Thursday after the latest economic data, with the Dow Jones Industrial Average falling nearly 1% to close at 38,085.80. The S&P 500 dropped almost half a percentage point to 5,048.42, and the Nasdaq Composite dropped 0.64% to 15,611.76.

The GDP slowdown comes amid signs that activity in U.S. private-sector manufacturing and services slowed in April. Businesses reported a decline in new orders for the first time in six months, with signs of further cooling ahead, according to the latest flash survey of purchasing managers by S&P Global.

Micron Technology is set to receive up to $6.1 billion in grants and another $7.5 billion in loans under a preliminary agreement with the White House to build semiconductor manufacturing plants in New York and Idaho, as the Biden administration tries to shift supply chains back to the United States from Asia.

The federal grants announced by Biden during a trip to Syracuse, New York, would support the construction of a fabrication plant in the Syracuse suburb of Clay, a first step toward Micron's plans to invest about $100 billion in New York and create 13,500 jobs, according to a Commerce Department statement.

The grants would also provide initial funding for a fabrication facility in Boise, Idaho, slated to be co-located with Micron's research and development facilities there in a project that could create an estimated 6,500 jobs.

New York officials in December unveiled a $10 billion public-private partnership with computer chip-industry leaders such as Micron and IBM as it plans to build a semiconductor research and development center that the state said will support development of the world’s most advanced and powerful chips.

The grant to Micron is the latest award from the $52.7 billion Chips and Science Act passed in 2022 to spur domestic production of semiconductors. Several other global chipmakers have manufacturing plants under construction or in planning stages across several U.S. states, such as Intel, Samsung and TSMC.

The number of Americans filing new claims for unemployment benefits fell last week, pointing to still tight labor market conditions across the country.

Initial unemployment claims for the week ended April 20 fell to a seasonally adjusted 207,000 — the lowest since mid-February — from 212,000 claims the previous week, according to the Labor Department.

Weekly unemployment claims, considered an indicator for the number of job cuts in a given week and a sign of job market conditions, have remained at historically low levels since millions of Americans lost their jobs early in the pandemic, according to Oxford Economics.

Weekly initial jobless claims "remain well below levels that would signal a major slowdown in net job growth," Nancy Vanden Houten, lead U.S. economist for Oxford Economics, said in a statement.

"A strong labor market gives the Federal Reserve the room to put off rate cuts until inflation gets back on a sustainable path to 2%," Vanden Houten said, adding that Oxford has pushed back its estimate of the first rate cut to September from June and has reduced the number of rate cuts in its forecast for the full year from three to two.