The Federal Reserve Closely Monitors Economic Growth Data While Evaluating When to Begin Cutting Interest Rates
Despite signs of a slowdown in recent weeks, economic growth is likely to remain stable until the end of the second quarter.
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Economists surveyed by Dow Jones Newswires and The Wall Street Journal expect the GDP to grow at an annual rate of 2.1% in the second quarter. The Bureau of Economic Analysis is set to release the closely-watched data on Thursday. If the estimates are accurate, this growth would be higher than the first quarter but still less than the second half of last year.
Moody’s Analytics economist Matt Collier wrote, “This would also be consistent with the economy expanding at a slightly slower pace than its estimated potential and consistent with the contraction observed in the first half of 2024.”
Economic activity has slowed, and inflation has declined as the Federal Reserve has kept its benchmark lending rate at its highest level in 23 years over the past year. Expectations have grown that the Federal Reserve will soon begin to lower the federal funds rate, but central bank officials say they are monitoring economic data for more evidence that inflation is clearly trending towards the Fed’s 2% annual target.
Factors Contributing to Second Quarter Growth
Some pillars of the economy are contributing to raising the GDP.
Inventory levels, which economists say are highly volatile and difficult to predict, likely boosted the economic growth measure in the second quarter. Many economists updated their GDP estimates after Wednesday’s report showed increased accumulation. Durable goods orders, such as heavy equipment for businesses, also showed signs of growth during that period.
However, no sector has influenced economic growth in recent years as much as consumer spending, and the second quarter will be no different, according to economists.
Consumers continued to spend despite inflationary price pressures and rising borrowing costs, helping the economy avoid the recession many believed would occur last year. So far, economists this year thought consumers would stumble as pandemic-era savings ran out.
Consumer Spending Remains Strong
Nevertheless, the second quarter was better than expected, culminating in a surprising June report showing little change despite economists’ expectations of declining spending.
Wells Fargo economists wrote, “Consumer spending is not even close to free fall.” Scott Anderson, chief U.S. economist at Bank of Montreal, said consumers still have significant trends working in their favor.
Anderson wrote, “Among the most favorable factors, in our view, are rising household wealth to record levels, rising real disposable income, and historically low unemployment levels. We may even see the impact of high-interest rates begin to fade over time, setting the stage for an economic growth rebound and a more manageable inflation rate in 2025.”
The Federal Reserve Closely Monitors Economic Growth Data