US Final GDP Improves in Q2 Puts Pressure on Fed

The U.S. economy expanded more than previously estimated in the second quarter on stronger consumer spending and construction, backing the case for an interest rate rise before the end of the year.

The Commerce Department said on Friday gross domestic product rose at a 3.9 percent annual pace in the April-June quarter, up from the 3.7 percent pace reported last month.

The data supports the case that the U.S. economy may be gaining enough strength to withstand an increase in benchmark interest rates from record low levels despite growing concerns about the global economy.

Stronger consumer spending and a smaller inventory build are also a good sign for growth in the third quarter, although economists are expecting a cooler pace of growth overall.

The U.S. Federal Reserve last week held off on hiking rates, but Fed Chair Janet Yellen kept the door open to an increase this year in a speech on Thursday night, as long as inflation remains stable and growth is strong enough to boost employment.

“There are a lot of things to like about the domestic side of the economy for the second half of the year despite all the global malaise,” said Jacob Oubina, senior economist at RBC Capital Markets in New York. “If the domestic economy holds in there, (Fed policymakers) are going to hike in December.”

Via Reuters

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza