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With second quarter GDP coming in stronger than expected, policies at the Federal Reserve meant to cool the economy look to avoid a recession. The Fed raised its lending rate by 25 basis points on Wednesday. File photo by Ken Cedeno/UPI |
License PhotoJuly 27 (UPI) — The advanced estimate of expansion of gross domestic product in the U.S. economy for the second quarter, reported Thursday, was 2.4%, an improvement over the first quarter and despite efforts at the Federal Reserve to cool the economy.
The U.S. economy looks to avoid a recession as GDP in the first quarter showed a 2% expansion and second quarter levels were better than expected. The federal Bureau of Economic Analysis said the acceleration was primarily due to more private and non-residential investments.
“These movements were partly offset by a downturn in exports, and decelerations in consumer spending, federal government spending, and state and local government spending,” the report read.
At the consumer level, BEA reported that personal savings were up marginally from the first quarter, though disposable personal income increased by 5.2% from first-quarter levels to reach $248.2 billion.
That, however, is sharply lower than the 12.9% increase in disposable income during the first quarter, showing inflation may be finally catching up to the U.S. consumer despite recent trends of improvement.
The U.S. Federal Reserve on Wednesday raised interest rates by another 25 basis points, increasing the federal funds rate range to a 22-year high of 5.25% to 5.5%. In a statement, the Fed said inflation remains elevated and job gains have been robust while unemployment has remained low.
Future data in the U.S. economy will determine the next steps for the Fed, though the consensus seems to be that policymakers will stand pat in the near term.
James Knightley, the chief international economist at investment bank ING, said the latest reading on GDP was better than expected but was lower than would be expected if the economy was not hobbled by the pandemic.
“This suggests that supply-side constraints continue to have an important legacy impact on inflation and additional rate hikes to dampen growth and get inflation sustainably back to target are not necessary,” he said.
