The country’s economy remains physically powerful, as the latest GDP insights show expansion at an annual rate of 2. 8%, far exceeding economists’ expectations for a weaker annual expansion rate of 1. 9%. Consumers and businesses have helped fuel the expansion despite pressure from persistently high interest rates.
The report released Thursday by the Commerce Department says gross domestic product (the economy’s total output of goods and facilities) rebounded in the April-June quarter, after growing at a 1. 4% rate in the January-March period. Growth in the last quarter also accelerated as companies increased their inventories.
Despite last quarter’s recovery, the U. S. economy, the world’s largest, has slowed from borrowing rates in decades, set through the Federal Reserve to fight peak inflation. From mid-2022 to 2023, annualized GDP expansion exceeded 2% for six consecutive quarters. In the last two quarters of last year, GDP grew at rates of 4. 9% and 3. 4%.
The state of the economy has caught the attention of Americans as the presidential crusade has intensified. Although inflation has slowed sharply from 9. 1% in 2022 to 3%, costs remain well above their pre-pandemic levels. Federal Reserve Chair Jerome Powell said the central bank wants more evidence that inflation is getting closer to its 2% target before it starts cutting rates.
“In summary, genuine second-quarter GDP surprised to the upside, with an annualized rate of expansion accelerating at the fastest speed since the fourth quarter of 2023,” Rubeela Farooqi, lead U. S. economist at High Frequency Economics, noted in a study note published on Thursday. And after a setback in the first quarter, inflation is falling again. “
He added: “For the Federal Reserve, this knowledge supports a cautious approach to rate decisions, although with inflation receding, rate cuts remain the most likely outcome. “
This year’s slowdown reflects, in large part, the much higher borrowing rates for home and auto loans, credit cards, and many business loans, as a result of the Federal Reserve’s competitive series of interest rate hikes.
The Federal Reserve’s rate hikes (11 of them in 2022 and 2023) were a reaction to soaring inflation that began in the spring of 2021 as the economy recovered at an unforeseen speed from the COVID-19 recession, causing a serious shortage of sources. The Russian invasion of Ukraine in February 2022 has worsened the situation by inflating the costs of the energy and grain on which the world depends. Prices have increased across the country and around the world.
Economists have long predicted that emerging loan prices would push the United States into a recession. However, the economy continued to advance. Consumers, whose spending accounts for about 70% of GDP, continued to shop, emboldened by a strong labor market and the savings they had accumulated during COVID-19 lockdowns.
The slowdown earlier this year was largely due to two factors, each of which can vary greatly from quarter to quarter: an increase in imports and a decline in business inventories. None of these trends reveal much about the underlying fitness of the economy. Consumer spending also slowed.
Federal Reserve officials have made clear that with inflation slowing toward their 2% target, they are in a position to begin cutting rates soon, which they are expected to do in September.
Quotes were delayed by at least 15 minutes.
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