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The US economy grew at a 2.8 per cent annualised rate in the second quarter, in a sign of continued consumer resilience as the Federal Reserve considers cutting interest rates in the coming months.
Thursday’s data from the Bureau of Economic Analysis surpassed economists’ expectation of 2 per cent GDP growth between April and June and marked a jump from the first quarter’s 1.4 per cent rate.
The Fed is weighing when to cut rates after raising them to a 23-year high of 5.25-5.5 per cent in response to the inflation shock from the pandemic.
Recent data suggests the central bank is succeeding in its battle to bring price pressures down to its 2 per cent target without triggering a recession. According to June’s consumer price index report, US inflation is now hovering around 3 per cent.
The two-year Treasury yield, which moves with interest rate expectations, rose slightly after the release, as traders reduced bets on interest rate cuts this year. However, markets were still pricing in two to three interest rate cuts by December.
Despite the strong performance in the second quarter, figures from earlier this month suggest that the labour market has started to soften, bolstering the case for an imminent rate cut.
Officials have already begun laying the groundwork to lower rates soon. Fed chair Jay Powell said last week that the last three monthly inflation figures marked a “pretty good pace” of price growth.
The Fed maintains that there is still a path to a “soft landing”, whereby inflation comes back down to target without triggering a surge in job losses. Lay-offs are increasing, pushing the unemployment rate above 4 per cent, but the figure still remains historically low.
The data confirms the US as a leader among advanced economies. Global growth is expected to stabilise at just above 3 per cent this year, according to forecasts published by the IMF last week.
The fund sharply increased its growth forecasts for China by 0.4 percentage points to 5 per cent and 4.5 per cent in 2024 and 2025 respectively.
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