The U.S. economy showed solid growth in the second quarter! Will the key to future interest rate cuts lie with the Federal Reserve?

The latest data shows that the US economy grew at an annualized rate of 3% in the second quarter, consistent with the second estimate and higher than the 1.4% annualized growth rate in the first quarter.

Furthermore, the growth rate of the US economy in 2023 is faster than initially expected, as corporate investment and consumer spending have upgraded despite the significant rate hikes by the Federal Reserve. The 2023 US GDP growth rate has been revised to 2.9%, higher than the previous estimate of 2.5%.

The rise in residential investment (including residential construction) also contributed to this revision. The economic growth rate for 2022 has been revised upward by 0.6 percentage points to 2.5%, mainly due to the upward revisions in consumer spending and corporate investment.

The annual benchmark data from the Bureau of Economic Analysis (BEA) of the US Department of Commerce also shows a significant upward revision in corporate profits for last year. The adjustments for inflation are minimal, while the savings rate has increased. Dave Wasshausen, Deputy Director of the National Economic Accounts Division at BEA, stated that the overall condition of the US economy remains unchanged.

Other data released on Thursday shows that the number of initial jobless claims in the US has dropped to 218,000, reaching a 4-month low.

In recent months, despite the rise in the US unemployment rate and the slowdown in job creation, the number of initial jobless claims has remained low. Economists point out that this is because workers eligible for such benefits have not actually become unemployed.

Although weekly jobless claims remain low, several large companies have announced or implemented layoff plans this month. Paramount Global conducted a second round of layoffs on Tuesday. General Motors announced last week that it would temporarily lay off two-thirds of the workers at an assembly plant in Kansas until mid-2025.

If layoffs increase in the coming months and more Americans find themselves unemployed, Federal Reserve officials may consider cutting interest rates at a faster pace than currently expected.

These data were released after the Federal Reserve cut rates by 50 basis points, as the Fed is currently trying to maintain the "favorable state" of the US economy as mentioned by Chairman Powell.

Following the rate cut on September 18, Powell stated, "The economy is growing at a steady pace, inflation is falling. Labor market conditions are good. We want to maintain this situation. That's what we are doing (by cutting rates)."

Thursday's GDP data is considered "retrospective" as it is an update on the US quarterly economic growth up to June. However, forecasts indicate that the US economy has been steadily growing up to the third quarter ending in September.

The Atlanta Fed's GDPNow tracker currently estimates that the annualized growth rate of the US economy in the third quarter is 2.9%. Meanwhile, Goldman Sachs' economic team predicts that the US economy will grow at an annualized rate of 3% in the third quarter