US economy contracts again, stagflation is here, stocks embrace idea of potentially less aggressive Fed, oil volatile, gold shines, bitcoin rallies

US GDP declines in Q2

The US economy is weakening much faster than anyone expected. The first look at the second quarter showed another negative reading, which was a surprise for most on Wall Street. The advance second-quarter reading came in at -0.9%, much worse than the consensus estimate of a gain 0.4%, but not as bad as the first quarter contraction of -1.6%. ​ A meaningful slowdown was expected much later, so this second-straight contraction will complicate the Fed’s plan to aggressively fight inflation. The massive hit to growth was mainly driven by a 2.0% hit from inventories. Consumer spending is cooling but still remains supportive for modest growth in the economy. ​

The US relies on the National Bureau of Economics to declare a recession, but for many the basic view of a recession is two consecutive quarters of contraction. What everyone can agree upon is that the economy is slowing rather quickly and that will keep the pressure on the Fed to tighten as much as they possibly can before they will need to go on hold. ​

Initial jobless claims confirmed its upward trajectory but remains at relatively low levels. There is a lot of noise with jobless claims, especially considering the shutdowns with many auto manufacturers. ​ The labor market is cooling but is still a bright spot of the economy. ​ ​ ​ ​ ​

A slower pace of rate hikes will be justified later this year, but for now the Fed still has the all-clear signal to deliver aggressive rate hikes. ​ The debate between a half-point and 75 basis-point increase at the September meeting will remain heated until we get the next couple of inflation reports. ​

Stagflation is obviously here now and will ultimately force the Fed into a difficult decision as to when they may need to pause tightening. ​ The Fed will not see inflation below the terminal rate anytime soon and that may drive the calls that the Fed will have to send this economy much sooner into a recession. ​


Crude prices remained a volatile trade as energy traders digested a surprising second consecutive contraction for the US economy and reports that OPEC+ will likely keep production steady or consider a small increase in output. The short-term crude demand outlook is looking vulnerable but significant downward pressures on crude prices seem unlikely as the US economy remains resilient and expectations for a severe recession is far from the base case.


Gold is breaking out now that a peak in Treasury yields is firmly in place. ​ Stagflation is here to stay and that should be good news for gold prices. ​ The US economy is heading towards a recession and as long as Wall Street believes the Fed will deliver a slower pace of tightening, gold should start seeing safe-haven flows again. ​

Gold’s biggest risk was that the economy was remaining robust and that the Fed might need to be more aggressive with rate hikes. ​ The risk of a full-percentage rate hike by the Fed is long gone. ​ Gold will face strong resistance at around the USD 1800 level. ​ The lead-up to the Jackson Hole Symposium could see gold settling between the USD 1725 and USD 1800 range. ​


Bitcoin got its groove back as the peak in Treasury yields appears to be firmly in place. ​ Risk appetite is roaring back after a second consecutive contraction for the US economy raises the chances that the Fed could be looking to tighten at a softer pace at the next policy meeting in September. ​ A broad rally for risky assets is great news for crypto, but traders should not be surprised if this recent stock market rally is eventually faded. ​

If the crypto winter is truly over, bitcoin might not break if we see stocks give up all of their post-FOMC and first look at Q2 GDP. ​ Bitcoin is facing tentative resistance at the USD 24,000 level, but if that can’t contain the bulls price could extend towards the USD 27,500 region. ​

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Ed Moya

Ed Moya

Contributing Author at OANDA
With more than 20 years’ trading experience, Ed Moya was a Senior Market Analyst with OANDA for the Americas from November 2018 to November 2023. His particular expertise lies across a wide range of asset classes including FX, commodities, fixed income, stocks and cryptocurrencies. Over the course of his career, Ed has worked with some of the leading forex brokerages, research teams and news departments on Wall Street including Global Forex Trading, FX Solutions and Trading Advantage. Prior to OANDA he worked with, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including CNBC, Bloomberg TV, Yahoo! Finance Live, Fox Business, cheddar news, and CoinDesk TV. His views are trusted by the world’s most respected global newswires including Reuters, Bloomberg and the Associated Press, and he is regularly quoted in leading publications such as MSN, MarketWatch, Forbes, Seeking Alpha, The New York Times and The Wall Street Journal. Ed holds a BA in Economics from Rutgers University.