The newly released initial August data from the Commerce Department shows the US economy showed surprising stability. It grew at an annual rate of 3% from April to June. This rebound comes after a contraction in the first quarter of the year, highlighting the volatility in economic performance due to various factors, including trade dynamics.
In fact, the recent data show that swings in trade may have provided the biggest boost to the economy’s recovery. Companies scrambled to bring products into the country before tariffs that had been promised by President Donald Trump, then a candidate, were imposed. Before Trump, imports soared. Under Trump’s tariff policies, imports plummeted. Collectively, these factors fueled economic growth that surprised forecasters at every turn.
Bernard Yaros, the new lead US economist at Oxford Economics, noted that on their surface, the growth numbers sound encouraging. What he’s frustrated with is that those indicators don’t really reflect the broad health of the economy. “Beneath the topline figure, the economy is switching to a lower gear but not going in reverse,” Yaros stated.
Behind the rosy topline growth though, we saw a big slowdown in consumer and business investment, with consumer spending falling from 1.9% to 1.2%. This growing trend raises alarm bells on the long term economic impacts. The Federal Reserve is scheduled to announce a decision on interest rates later today, which adds to that uncertainty. America’s central banker, Jerome Powell, pictured above, will be in the hot seat as he tries to thread the needle between these conflicting economic signals.
No surprise then that President Trump has been eager to use this recent economic data to bash Powell for mismanaging interest rates. He argued that those growth numbers should lead to a lowering of rates. “WAY BETTER THAN EXPECTED! ‘Too Late’ MUST NOW LOWER THE RATE. No Inflation! Let people buy, and refinance, their homes!” he stated emphatically.
As the economy continues to navigate these changes, Yaros stressed that how the Federal Reserve responds will be key. He said that the economy’s resilience would allow the Fed to hold interest rates “higher for longer.” They will take stock of the effect of the tariffs on consumer prices before making any reductions likely this December.