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The US economy exhibited a growth rate of 2.8% on an annualized basis in the second quarter, showcasing the enduring strength of consumer spending as the Federal Reserve contemplates potential interest rate cuts in the near future.
The data released on Thursday by the Bureau of Economic Analysis exceeded the expectations of economists, who had predicted a 2% GDP growth between April and June. This marks a significant increase from the 1.4% growth rate seen in the first quarter.
Amidst considerations of when to implement rate cuts, the Fed had previously raised rates to 5.25-5.5%, the highest level in 23 years, in response to inflation concerns.
Recent reports indicate that the central bank’s efforts to bring inflation down to its 2% target without inducing a recession have been somewhat successful. June’s consumer price index data reveals that US inflation is currently around 3%.
Following the release of the data, the two-year Treasury yield, which is influenced by interest rate expectations, experienced a slight increase as traders adjusted their expectations for rate cuts. However, the market still anticipates two to three rate cuts by December.
Despite the robust performance in the second quarter, recent data suggests a softening of the labor market, further supporting the case for a potential rate cut.
Officials have begun laying the groundwork for rate reductions, with Fed chair Jay Powell noting positive trends in recent inflation figures.
The Fed remains optimistic about achieving a “soft landing” scenario where inflation moderates without causing significant job losses. While layoffs have increased, pushing the unemployment rate above 4%, it still remains historically low.
The data reaffirms the US’s position as a frontrunner among advanced economies. Global growth is projected to stabilize slightly above 3% this year, as per IMF forecasts released last week.
The IMF notably raised its growth forecasts for China, predicting a growth rate of 5% in 2024 and 4.5% in 2025 respectively.