US economy beats expectations with spring surge

The US economy experienced a spring surge, with growth reaching an annual rate of 2.4% in the three months to June, despite a slowdown in consumer spending. This growth was driven by a jump in business investment and a 1.6% increase in consumer spending.

The Fed’s interest rate hikes have been a concern for months, but businesses and households have continued to spend, despite rising borrowing costs. This growth may help the US economy avoid a recession, but some economists warn it may make it more difficult to root out inflation pressures fully, potentially leading to even higher interest rates in the coming months.

High demand will also reinforce inflationary pressures, which are an ongoing concern for the Fed. As long as the labor market remains tight and inflation remains above the central bank’s 2% target, further rate increases are expected. Inflation in the US was 3% in June, down sharply from 9% last year.

Fed Chair Jerome Powell believes the economy will need to slow further before policymakers can confidently stamp out the problem. The unemployment rate remains unchanged at 3.6%. Wages are also rising, supporting consumer spending, with average hourly pay 1.2% higher in June than a year ago, outpacing price increases for the first time since 2021.