US GDP growth accelerates to 2.4% in Q2 despite Fed rate hikes | Mint
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Business News/ Economy / US GDP growth accelerates to 2.4% in Q2 despite Fed rate hikes
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US GDP growth accelerates to 2.4% in Q2 despite Fed rate hikes

US economy grows at a 2.4% annual rate in Q2, fueled by consumer spending and investment, defying rising interest rates and surpassing expectations.

US President Joe Biden speaks about the economy at the Old Post Office in Chicago (AFP)Premium
US President Joe Biden speaks about the economy at the Old Post Office in Chicago (AFP)

The US economy accelerated to a 2.4% annual growth rate between April and June this year, helped partly by consumer spending and some forms of investment. Estimates shared by the Commerce Department showed unexpected resilience in the face of steadily rising interest rates as the Federal Reserve continues its fight against inflation. GDP growth in the world's biggest economy rose from the 2% rate in the first three months of 2023, going well above analyst expectations.

Consumer spending increased at a 1.6% pace (more than forecast) after surging at the start of the year. Investment in housing however dropped, weakened by the weight of higher mortgage rates.

The numbers came amid repeated warning from economists about a potential slowdown as the US central bank raised interest rates rapidly in the past year to tamp down demand and lower inflation. While an "upturn in private inventory investment and an acceleration in nonresidential fixed investment" contributed to the acceleration, it was partly offset by a downturn in exports and decelerations in consumer spending as well as in government spending. 

The International Monetary Fund upgraded its forecast for US economic growth for all of 2023 to 1.8% this week - an improvement from the 1.6% growth the IMF had predicted for 2023 in April.

ALSO READ: At 3.75%, ECB lifts rates to historic 23-year high in battle against inflation

Federal Reserve chair Jerome Powell told reporters on Wednesday that his staff is no longer forecasting a recession although they still see a “noticeable slowdown in growth starting later this year". The the Feds' 16-month-long fight against inflation has seen the benchmark rate being 11 times since March 2022 — most recently on Wednesday. 

The resulting higher costs for a broad range of loans — from mortgages and credit cards to auto loans and business borrowing — have taken a toll on growth.

 

(With inputs from agencies)

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Published: 27 Jul 2023, 06:29 PM IST
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