After a quarter of contraction and political pressure mounting, the U.S. economy’s surprise second-quarter growth and a sharp rebound in private jobs in July have weakened the case for a September rate cut, leaving Fed Chair Jerome Powell in the hot seat ahead of Wednesday’s pivotal policy decision.
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The 3% annualized GDP growth for the second quarter—well above the 2.4% forecast—came as a surprise to many. Combined with a strong bounce in July’s private payrolls, the data sent rate cut bets tumbling.
According to CME Group’s FedWatch tool, traders now see a 58% chance of a September cut, down from 65% just a day ago, and way off the 95% odds priced in a month earlier.
Trade Payback Powers Q2 Rebound, July’s Labor Market Shows Strength
Much of the GDP rebound came down to a big drop in imports, which fell 30.3% last quarter. That followed a front-loaded import surge in Q1, when companies rushed to get ahead of new tariffs announced by the Trump administration.
Since imports subtract from GDP calculations, their collapse gave Q2 figures a notable boost, though it doesn’t necessarily reflect a sudden jump in domestic demand.
Second-quarter growth …