U.S. GDP Surpasses Expectations; September Rate Cut Likely

The U.S. economy grew faster than expected in the second quarter, driven by consumer spending and business investment. Inflation pressures eased, raising the likelihood of a September interest rate cut by the Federal Reserve. Despite solid growth, uncertainties remain about the second half of the year.

The U.S. economy accelerated more than anticipated in the second quarter, buoyed by robust consumer spending and business investments, according to the Commerce Department's advance report on Thursday.

Inflation pressures have eased, heightening the probability of a Federal Reserve interest rate cut in September. However, the housing market remains a minor drag, and the trade deficit has widened, subtracting from GDP growth.

"Economic growth is solid, not too hot and not too cold," noted Christopher Rupkey, chief economist at FWDBONDS, pointing to a resilient labor market as a key driver despite aggressive interest rate hikes in recent years.

Consumer spending, making up over two-thirds of U.S. economic activity, grew by roughly 2.3% due to increased outlays on services and goods. Business investment also surged, with equipment spending skyrocketing at an 11.6% pace.

Despite this momentum, the outlook for the latter half of the year is uncertain, impacted by a cooling labor market and potential tariff impacts.

(With inputs from agencies.)