US economy defies expectations with bumper 3% growth ahead of Fed rates decision
US GDP rebounded from a 0.5 per cent contraction in the first quarter and exceeded growth forecasts of 2 per cent, the Commerce Department's Bureau of Economic Analysis said on Wednesday.
It came as the world's biggest economy sharply cut back on foreign imports after stockpiling in the first quarter in efforts to beat President Donald Trump's liberation trade tariff assault.
Trump took to his Truth Social platform to cheer 'WAY BETTER THAN EXPECTED' growth, and renewed pressure on Federal Reserve chair Jerome Powell to cut interest rates later today.
'Too Late' MUST NOW LOWER THE RATE. No Inflation! Let people buy, and refinance, their homes,' he added.
But Powell is expected to shun the President's demand at 2pm US eastern time – or 6pm GMT – and once again keep its federal funds rate on hold at its current range of 4.25 to 4.5 per cent.
US inflation was at 2.7 per cent in June while its labour market remains relatively robust, and investors expect the Fed to keep rates on hold until at least September.
Trump, who has previously demanded rates are cut to 1 per cent, has been a vocal critic of Powell, leading to market fears t he US government could undermine the central bank's independence.
James Knightley, chief international economist at ING, had been predicting even stronger second quarter growth or 3.3 per cent, but warned the US economic outlook is far from rosy.
Fresh data shows US consumer spending growth remains lacklustre at 1.4 per cent.
Meanwhile private investment slumped 15.6 per cent yearon-year, it's biggest drop since the pandemic, while a 3.7 per cent fall in government spending and investment reflected White House efforts to slash the Federal budget.
Knightley added: 'Consumers are nervous about the outlook, construction is struggling and business investment has lost momentum.
'The trade swings are going to keep distorting the headline growth rate through much of this year due to the evolving nature of trade policy.
'Outside of this, the data remains consistent with a cooling growth story, but there appears to be little pressing need for an interest rate cut despite the President's demands.
'With the economy still adding jobs and there being a large degree of uncertainty over the inflationary impact from tariffs, the rest of the [Fed's rate setting] committee will oppose and remain in data-watching mode.'
Atakan Bakiskan, US economist at Berenberg, said: 'This softer growth path will likely persist - courtesy of slower immigration, trade wars and an uncertain macro environment
'Given the lag and the noisy signal it sends, GDP will remain in the backseat.
'The Fed will stay focused on what sits in the front seat - the holy grail nonfarm payroll data - to assess the health of the US economy
'Today's GDP report will not change the narrative of a slowing but not stalled US economy.'
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