The American economy is showing signs of picking up momentum this spring, driven by robust consumer spending. The Commerce Department is expected to announce a 1.9% annual growth rate in the gross domestic product for the April-June quarter, up from 1.4% in the previous quarter.
The recent slowdown in the U.S. economy can be attributed to the Federal Reserve's aggressive rate hikes, which led to higher borrowing costs for consumers and businesses. The Fed raised its benchmark rate to approximately 5.3%, responding to inflationary pressures that arose from the rapid economic recovery post-COVID-19 and exacerbated by global events like the Russia-Ukraine conflict.
Despite concerns that rising borrowing costs could trigger a recession, consumer spending remained resilient, supported by a strong job market and accumulated savings from the pandemic lockdowns. However, the economy experienced a slowdown at the beginning of 2024 due to increased imports, reduced business inventories, and a slight dip in consumer spending.
Economists predict a rebound in consumer spending to a 2.5% annual pace in the last quarter, contributing to an overall 2.4% growth rate. The Federal Reserve's preferred inflation measure, the personal consumption expenditures price index, is expected to show a moderation in inflationary pressures from the previous quarter.
Fed officials are considering rate cuts as inflation approaches their 2% target level, with expectations of a rate cut in September. Some experts suggest that the Fed should act sooner to address the cooling economy and declining inflation.
