Second Quarter GDP and Wednesday’s Fed Decision

The Fed’s policy-making FOMC is scheduled to meet this week with an rate announcement expected at 1:00 p.m. Central Time on Wednesday afternoon. Although the bond market has priced in an aggressive series of rate cuts, recent economic data has been stronger-than-expected, which makes the case for fewer and less aggressive moves. In particular, Friday’s second quarter GDP reading was surprisingly solid, bettering the +1.8% median forecast with a +2.1% increase. But, there‘s quite a bit to unpack here. On the surface, the +2.1% second quarter annualized quarterly advance was well below the +3.1% first quarter gain, but the second quarter advance was driven primarily by consumer spending, which soared by +4.3% (the best in five years) and government spending which jumped +5.0% (the best in 10 years).

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