U.S. Economy Posts Strong Second Quarter Results

This was a notable improvement from Q1, when the economy contracted 0.5 percent. Additionally, consumer spending was up modestly at 1.4 percent, along with a general positive jobs picture and unemployment relatively low at 4.1 percent. Thus, with the economy displaying resilience within an ever-changing tariff environment and inflation holding steady above the 2 percent target, the Fed remained in restrictive mode and decided at today’s meeting to keep its benchmark rate at 4.25-4.50 percent.

However, it is worth noting that the strong Q2 results can be somewhat misleading, as the decrease in imports from ongoing tariff actions was a main contributor to boosting GDP. There are also some growing signals that in the face of continued trade and economic uncertainties, businesses are slowing investment. Consumer outlook and confidence appears to be moderating which will impact spending. Additionally, residential investment, in the form of home building and sales, declined for the second straight quarter. So, while the Fed paused a rate cut for now and did not clearly display its cards regarding a possible reduction at their next meeting in September, it is reasonable to assume that if economic headwinds and downside risks continue to develop in the second half of the year, the possibility of a monetary policy change increases.