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US GDP Growth Hits 2.1% In Q2, Beating Forecasts

US GDP Growth Hits 2.1% In Q2, Beating Forecasts

Despite concerns over a slowing global economy and negative impacts of the ongoing trade war with China, the U.S. grew its gross domestic product by 2.1% in the second quarter of 2019, according to the Bureau of Economic Analysis.

The U.S. economy overcame falling economic growth forecasts around the world an ongoing trade war with China and more dovish commentary from the Federal Reserve and beat consensus forecasts of just 1.8% growth.

Why It’s Important

The S&P 500 has surged 19.4% year to date to new all-time highs. Concerns over a near-term U.S. recession have eased, and economic growth numbers suggest the U.S. economy is on a stronger footing than previously feared.

U.S. GDP growth has been cut in half from 4.2% in the second quarter of 2018 and was down from 3.1% in the first quarter of 2019. U.S. President Donald Trump has said he expects the economy to continue to grow at a 3% rate throughout 2019, but economists are expecting economic growth to remain around 2% for the remainder of the year.

The latest economic numbers are particularly important ahead of next week’s Federal Reserve meeting. Last month, the Fed said it will “act as appropriate to sustain the expansion” of the U.S. economy. The Fed also said it will “closely monitor the implications of incoming information for the economic outlook.”

The bond market is currently pricing in a 100% chance of at least a 0.25% interest rate cut next week, according to the CME Group FedWatch tool.

On Thursday, the European Central Bank hinted of a possible interest rate cut in the second half of 2020. Back in March, the ECB cut its 2019 economic growth forecast for the Eurozone from 1.7% to 1.1% and announced a third round of bank stimulus that will begin in September and run through March 2021.

In April, the International Monetary Fund cut its 2019 global growth forecast from 3.5% to 3.3%.

What’s Next

Investors will be watching to see if the Federal Reserve cuts interest rates next week and by how much. Investors will also continue to monitor the ongoing trade dispute between the U.S. and China, which many economists have said has weighed on global economic growth.

Investors seemed to cheer Friday’s GDP number, sending the SPDR S&P 500 ETF Trust (NYSE: SPY) higher by 0.2%.

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