WASHINGTON (Reuters) - A new round of price cuts by major U.S. retailers and data showing a consumer spending slowdown may boost the Federal Reserve's confidence in falling inflation and take the edge off of corporate profits that have grabbed a larger share of national income since the start of the COVID-19 pandemic.

The Commerce Department reported on Thursday that the U.S. economy grew more slowly than initially thought, expanding at a 1.3% annual rate over the first three months of the year versus an initial estimate of 1.6%.

Much of the change came from a lowered pace of consumer spending, indicating a core prop of the economy may be slowing in line with Fed officials' expectations and possibly helping reduce inflation as well.

Fresh inflation data will be released on Friday, with economists polled by Reuters expecting the personal consumption expenditures price index to have risen at a 2.7% annual rate in April, matching the gain in March. The Fed uses PCE inflation to set its 2% inflation target, and policymakers have been worried that progress towards that level may have stalled after a steady decline from the peak above 7% in June 2022.

The U.S. central bank is expected at its June 11-12 policy meeting to keep its benchmark interest rate steady in the 5.25%-5.50% range, where it has been since last July. Fed officials say the next move on rates will likely be to lower them, but not until they feel assured inflation will resume its decline to 2%.

The revised gross domestic product data, which also slightly lowered estimates of first-quarter inflation, may help the case, as could a recent string of corporate price-cut announcements.

"Softer overall demand and lower inflation in the first quarter should be more of a relief for the Fed and the market rather than a concern" of a fast economic slide, said Tuan Nguyen, an economist at RSM US, who argued the new data should bolster the case for Fed rate cuts coming "sooner rather than later."

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Walgreens, saying it "understands our customers are under financial strain," this week joined Target ( TGT ), Walmart ( WMT ) and other retailers in broad price cuts focused on food and other staples.

Fed officials have said they feel consumers are in broadly good shape, with unemployment low and wages rising. But they've also noted signs of stress among lower-income households, including rising loan default rates and credit card borrowing.

The price cuts announced this month may show that same sense taking hold in corporate executive suites and touching off the sort of dynamic Fed policymakers expected would eventually take hold: A fight for market share as pandemic-era pricing power wanes, along with the elevated profits that followed it.

The data released by the Commerce Department on Thursday included an estimate of corporate profits for the first three months of the year. Even though earnings fell slightly, corporate profits continued to take an elevated share of the income earned by all workers and businesses combined.

Corporations' share of income climbed during the pandemic as snarled supply chains and pandemic-era transfer payments to individuals left home-bound consumers with money to spend on goods that had become scarce - a recipe for price hikes and higher margins. When pandemic restrictions were lifted and in-person events resumed, that surplus purchasing power shifted to travel, restaurants and other services - and inflation spiked there as well.

Fed officials in recent weeks have said they think the landscape has shifted, with businesses generally saying their capacity to raise prices is diminished compared to the last two years. In the Fed's most recent "Beige Book" collection of anecdotes about the economy, there was a widespread sense of consumers becoming more selective and putting pressure on firms.

"Consumers are becoming more price-conscious, likely putting pressure on profit margins. We should expect more discounts and incentives as some consumers struggle with persistently high prices," Jeffrey Roach, the chief economist at LPL Financial, said after the release of the Fed report.