Best U.S. Growth in 4 Years Leaves the Fed Facing Trade Uncertainty

Investing.com – The second-quarter expansion in GDP showed the solid state of the American economy on Friday, but left economists questioning the stability of the numbers at hand, while offering little to change the Federal Reserve’s plans for monetary policy.

The U.S. economy grew in the second quarter, in line with consensus and its strongest reading since the third quarter of 2014.

Viraj Patel, FX and global macro strategist at ING, noted that the growth in personal consumption implied that the American consumer is “propping up entire global economy”.

“Markets may question how sustainable one source of growth is,” Patel warned, as he pointed to the dip in the .

Other experts pointed to the surge in exports and suggested that the jump was due to foreign countries raking in supplies ahead of expected tariff implementation.

“(There was a) 13.3% increase in exports which were clustered in agriculture exports,” RSM chief economist Joseph Brusuelas said. “Soy is the word of the day.”

Strong Growth Not a Game Changer for the Fed

The data as a whole was in line with expectations, but did little to change the Fed’s game plan of continuing with “gradual” rate hikes.

“With a strong job market, inflation close to our objective, and the risks to the outlook roughly balanced, the FOMC believes that — for now — the best way forward is to keep gradually raising the federal funds rate,” Fed Chairman Jerome Powell testified to Congress on July 17.

Despite, his upbeat assessment of the U.S. economy, Powell was very clear that that “it is difficult to predict the ultimate outcome of current discussions over trade policy” and left the ball in U.S. President Donald Trump’s court for how to handle negotiations with China, Canada, Mexico and the European Union, among others.

Markets clearly judged that the Fed’s future decisions were not impacted by Friday’s GDP data. Fed fund futures continued to price in a rate hike in September and the probability for a hike in December was last at 69.4%, compared to 69.5% before the release.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.