U.S. Economic Growth Accelerates, Inflation Decreases

In the second quarter of this year, U.S. economic growth was faster than expected. At the same time, the inflation rate has decreased somewhat, leading to expectations that the central bank will lower the base interest rate in September. According to statistics from the Bureau of Economic Analysis at the U.S. Department of Commerce released on Thursday, July 25, the Gross Domestic Product (GDP) in the second quarter of this year increased by 2.8% compared to the same period last year. Earlier this year, independent economic experts predicted that the GDP growth rate for this period would be between 1% and 3.4%. The U.S. economic growth rate in the first quarter of this year was 1.4%. According to the criteria of the U.S. central bank, an economic growth rate of about 1.8% is not considered inflationary. Despite repeated increases in interest rates in 2022 and 2023 aimed at controlling inflation, U.S. economic growth is higher than that of comparable economies. One important factor is the resilient labor market and the continued creation of new job opportunities. Although the unemployment rate has now reached its highest level in two and a half years, it is still around four percent. Job creation in the U.S. is 'less than expected' and the unemployment rate is 'increasing'. Based on official statistics, the rate of increase in the prices of goods and services, excluding food and fuel which are always more volatile, was about 2.9% in the third quarter of this year, showing a decrease of about eight-tenths of a percent compared to the first quarter. The slowdown in price increases could influence the U.S. central bank's decision to review interest rates next week. The central bank usually pays special attention to the table of price increases for goods and services (excluding food and fuel) when determining interest rates and considers a two percent increase to be optimal. Over the past year, the central bank has maintained the base interest rate between 5.5% and 5.25%, which is about five percent higher than the years 2020 to 2022 before the onset of a new wave of global inflation. The U.S. financial market predicts that the central bank will reduce interest rates three times from September to the end of this year. Despite stable economic growth in the U.S., the outlook for the second half of the year is not very bright or positive. Evidence suggests that the pace of job creation has slowed, which could negatively impact the income of many wage earners. The savings rate of the American people is still much lower than before the COVID-19 pandemic, and economists believe that the consequences of rising interest rates over the past two years are still weighing heavily on families and small businesses. At the same time, the revenue of state and municipal governments is also declining, resulting in a reduction in public spending budgets. Another concern is the potential increase in tariffs on imported goods if Donald Trump returns to the White House, which could harm import-dependent economic activities and raise the prices of some consumer goods. Nevertheless, a significant decrease in economic growth or the onset of a recession seems unlikely, as evidence suggests that the U.S. central bank will reduce the average interest rate in the final months of this year.