After a lacklustre start to 2025, the U.S. economy posted a surprising comeback in the second quarter, with GDP rising at an annualised rate of 3.0%, according to data released today.
The sharp upswing follows a 0.5% contraction in Q1, catching analysts off-guard and fuelling speculation about the durability of the recovery.
📈 A Rebound Built on Consumers and Imports
At the heart of the turnaround lies a 1.4% increase in consumer spending, led by strong demand in sectors like healthcare, finance, and automotive sales.
But what really moved the needle was a dramatic collapse in imports — down 30.3%, reversing the Q1 surge and effectively boosting the GDP calculation.
While exports and business investment both shrank modestly, the overall picture was buoyed by domestic strength and favourable trade math.
💰 Inflation Retreats — Temporarily?
The Personal Consumption Expenditures (PCE) Price Index, a key measure of inflation, ticked up just 2.1%, down from 3.7% in the previous quarter.
The Core PCE, which excludes volatile food and energy prices, landed at 2.5%, easing pressure on the Federal Reserve to act aggressively.
Yet policymakers are watching warily. A surge in tariffs—particularly those scheduled for August—could distort prices and consumer behaviour in the months ahead.
🧠 Fed and Market Implications
The GDP bounce gives the Federal Reserve some breathing room, but not total confidence. Investment weakness and subdued export activity could signal structural fragilities beneath the headline growth.
With tariff uncertainty, election-year dynamics, and a cautious jobs market all in play, rate policy may stay frozen until the economic picture becomes clearer.