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U.S. Economy Thrives Despite High Interest Rates—Are We Out of the Woods?

theguru Views  

Yonhap News

The U.S. economy exhibited stronger growth in the last quarter, marking the second consecutive quarter of acceleration despite the pressures of higher borrowing costs, indicating sustained demand.

According to the initial estimate from the U.S. government, gross domestic product (GDP) increased by 1.4% over the previous period, with an annual growth rate of 2.8%. Another significant driver of economic growth, personal consumption, also rose by 2.3%. The Bureau of Economic Analysis reports indicate that core inflation eased from the first quarter, increasing by 2.9%.

Despite this accelerated growth, inflation levels remain similar. High interest rates, which help stabilize inflation, have slowed consumer spending and broader economic activity. This situation also gives the Federal Reserve the leverage to potentially lower interest rates as early as September.

However, with the unemployment rate rising for three consecutive months, achieving a balance in the labor market without massive layoffs may require a cautious approach.

Yonhap News

Following the report, Treasury yields rose slightly, and stock futures experienced fluctuations. The GDP report indicated that consumer spending was driven by a modest increase in service expenditures compared to the first quarter and a rebound in durable goods such as automobiles and furniture.

Government spending, including defense spending, contributed to GDP in the first three months. Business investment led to the strongest increase in equipment spending since 2022, with its fastest pace of the year. A different report indicated that U.S. manufacturer orders for non-defense capital goods, excluding aircraft, saw the largest increase since early last year in June. This suggests that such expenditures will continue to support upcoming economic growth.

On the contrary, high mortgage rates have suppressed sales activity and new construction, resulting in a decline in real estate investment for the first time in a year.

theguru
content@viewusglobal.com

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