The Economy Is Rushing But Can Avoid a Speed Trap
GDP expanded at a 2.4% annual pace in the second quarter. That might prompt the Fed to tap the brakes a bit more, but it’s mostly good news.
Fed Chair Jerome Powell left the door open to more rate increases.
Photographer: Al Drago/Bloomberg
The US economy expanded at a 2.4% annual pace in the second quarter, crushing consensus expectations and driving another stake into the 2023 recession narrative. But those inclined toward bearish views still have an angle to pursue over the medium term: perhaps the economy is too good and the Federal Reserve will have to raise rates beyond the current 22-year high, effectively stepping on the brakes even harder and dooming us to an ugly 2024.
That’s a scenario that Fed Chair Jerome Powell seems to be at least entertaining (but maybe without such a negative outcome). As Powell said at his press conference on Wednesday after the central bank raised its target rate 25 basis points, reducing inflation “is likely to require a period of below-trend growth and some softening of labor market conditions” — a mantra he has repeated for months.