ATFX - A piece of good news for the Fed and the markets? US GDP revised down in the second quarter

atfxEconomists believe that the second-quarter GDP revision means that the economy still looks good and reduces the risk of overheating and rising inflation...

The U.S. economy grew less than previously expected in the second quarterThat is a good sign for the Federal Reserve, which is trying to cool demand to keep prices in check.

According to data released by the U.S. Commerce Department on Wednesday,Second-quarter GDP was revised down to an annualized rate of 2.1% from 2.4% previously.Consumer spending, government spending and exports were revised upwards from the preliminary valueMeanwhile, business investment and inventories were revised downGrowth in business investment, known as non-residential fixed investment, was revised downwards from 7.7 per cent to 6.1 per cent, as residential fixed investment, which reflects the state of the US housing market, was a smaller drag on growth than previously estimated.

U.S. economic growth in the second quarter was largely broad-based, but there are indications that,Goods purchases and import demand weakenedConsumer spending, which accounts for about 70% of economic output, was revised slightly higher in the second estimate.

Economists generally predict that,Americans' spending on travel, dining, and other hands-on experiences will increase significantly, and this summer's spending will be exceptionally strongUnion Credit Bank Chief Economist Bill Adams wrote in an analysis:

"The pace of the slowdown will help bring demand in line with US capacity and keep inflation in check. The lower GDP revision is good news on two levels: the economy still looks good and reduces the risk of overheating and rising inflation."

The U.S. economy has maintained strong momentum in the summer months, but that remarkable strength made some Federal Reserve officials nervous when they discussed monetary policy in July and ultimately decided to raise interest rates by 25 basis points, taking the federal funds rate to its highest level in 22 years.

Federal Reserve Chairperson Jerome Powell said last week,If the economy doesn't slow down, there could be more rate hikesAt the Jackson Hole Central Bank Annual Meeting, he said:

"Further evidence of sustained above-trend growth could put inflation at risk of further progress and could justify further monetary tightening."

The Atlanta Fed currently forecasts that...GDP growth in the United States will accelerate significantly in the third quarter, reaching an annualized rate of 5.9%.

However, several factors could contribute to the slowdown, such as the resumption of student loan payments in October and the lagged effect of higher interest rates.

There is much uncertainty about the delayed effects of tighter monetary policyIn particular, when will these effects trickle down to the broader economy, and how much they affect economic activity. About a year and a half ago, the Federal Reserve launched its most aggressive rate hike in decades, but U.S. consumers are still driving economic growth.

In the coming months,The resilience of the US economy is likely to continueThis increases the likelihood of a soft landing for the Fed. Lydia Boussour, senior economist at Ernest & Young, wrote in a note:

"Looking ahead, the data suggest that momentum in the second half of the year will remain steady and confirm that there will be no recession in the near future, with notable real GDP growth of around 2.5 per cent annualised in the third quarter. Overall, the outlook for the US economy has improved as the unique post-COVID-19 pandemic dynamics appear to make a soft landing more likely."