Key facts
- U.S. economic growth in the second quarter is expected to have been steady, matching the first quarter's pace.
- Stronger consumer spending and business investment in AI infrastructure are key drivers of this growth.
- Trade is estimated to subtract up to a full percentage point from GDP growth.
- Residential investment is projected to contract for the sixth consecutive quarter.
- The Federal Reserve maintained its benchmark interest rate but dissenters favored a hike.
- Economists anticipate potential interest rate increases by the Fed in September to combat inflation.
The U.S. economy is projected to have maintained a steady growth rate in the second quarter, with economists forecasting a 2.1% annualized increase in GDP, matching the pace of the previous quarter. This growth is attributed to robust consumer spending, bolstered by tax refunds and strong asset prices, as well as significant business investment in artificial intelligence infrastructure.
Despite potential headwinds from trade deficits and rising energy prices due to Middle East conflict, consumer spending is expected to have accelerated from its sluggish first-quarter performance. Business investment in equipment, particularly related to AI, is showing strong momentum, although investment in structures like factories is anticipated to contract for the tenth consecutive quarter.
However, economists warn that the ongoing conflict in the Middle East poses a downside risk to growth in the latter half of the year. The Federal Reserve maintained its benchmark interest rate but faced dissent from members favoring a hike, signaling a potential increase as soon as September to combat inflation. Residential investment is expected to continue its contraction for the sixth straight quarter.