Economists predict that the growth of the U.S. economy may force the Federal Reserve to postpone its interest rate cut plan

If economists' predictions are correct, the U.S. economy has rebounded from a slow start this year to achieve growth. However, strong growth may force the Federal Reserve to postpone its interest rate cut plans. Currently, traders predict that the rate cut may take place in September.

According to the financial news app, the U.S. Bureau of Economic Analysis will release its preliminary estimate of the second-quarter U.S. Gross Domestic Product (GDP) growth on Thursday. Based on the consensus forecast of economists surveyed by FactSet, the GDP annualized growth rate is adjusted to 1.9%. The New York Fed predicts a GDP annualized growth rate of 2.2%, while the Atlanta Fed's "GDPNow" model estimates it at 2.7%.

The actual GDP growth rate in the first quarter, seasonally adjusted, was 1.4%. Although most economists and analysts expect growth in the second quarter to exceed this slower pace, they do not anticipate it reaching a growth rate of over 3% in the second half of 2023.

Nevertheless, the latest growth data for the U.S. economy is still a tightrope walk.

Beth Ann Bovino, Chief Economist at Bank of America, stated that actual GDP growth may be slightly above 2%, which could pose a challenge to the Federal Reserve. According to the CME FedWatch tool, as of Wednesday afternoon, the probability of a rate cut in September is 91%, compared to 61% a month ago.

Bovino pointed out, "Everyone hopes for a lukewarm 'Goldilocks moment,' and the Fed may deal with growth slightly above 2%, but if (GDP growth) significantly exceeds this level, it may challenge the market's expectation of a rate cut in September."

There are significant differences in forecasts before Thursday. This is because some recent economic data points have been weaker than expected, while other indicators such as retail sales and housing starts have performed well.

Mark Zandi, Chief Economist at Moody's Analytics, wrote, "Compared to the strong growth in 2023, the growth of the U.S. economy this year has slowed down." Moody's economic team predicts that the GDP growth rate in the second quarter will reach 1.4% for the second consecutive quarter, but this does not mean that the economy is sharply declining.

The recent economic slowdown is largely "intentional," according to Zandi. The Federal Reserve is maintaining a high federal funds rate to suppress demand, cool down an overheated job market, and alleviate wage and price pressures.

Joe Brusuelas, Chief Economist at RSM, pointed out that the two main "swing factors" in the preliminary GDP growth estimate on Thursday are how inventories perform and the extent to which government spending slows down this quarter. Brusuelas predicts a growth rate of 2.4%, and he believes that inventories in the second quarter may be "quite strong," thereby driving overall economic activity. However, a significant slowdown in government spending will drag down economic growth.

Alice Zheng, economist at Citibank, stated that consumption is expected to increase due to a rebound in durable goods spending, but growth in service spending is still expected to be slow. The bank's economic team also conservatively predicts a growth rate of only 1.4% in the second quarter, the same as the first quarter. Citibank expects that the boost from increased consumer spending will be offset by lower investment and net exports In addition to GDP data, the US Bureau of Economic Analysis will also report the quarterly growth of the Personal Consumption Expenditures (PCE) Index, which is a preferred inflation measure by the Federal Reserve. Brusuelas expects the PCE inflation rate for the second quarter to be 2.6%, lower than the 3.4% in the first quarter