Solid U.S. GDP Growth Is Unlikely To Prevent Fed Interest Rate Cuts

by · Forbes

U.S. Gross Domestic Product expanded by 2.8% in the third quarter of 2024 after expanding by 3% in the second quarter. Plus, the outlook for the fourth quarter of 2024 is positive. Despite solid U.S. economic growth, the Federal Reserve is likely to cut interest rates further before the end of the year.

The U.S. economy grew by 2.8% in Q3 2024. Photo by Spencer Platt/Getty ImagesGetty Images

Growth Continued In The Third Quarter Of 2024

U.S. economic growth expanded for a ninth consecutive quarter through the end of the third quarter of 2024.

The U.S. economy grew by 2.8% in the third quarter of 2024, according to the latest Advance GDP report from the U.S. Bureau of Economic Analysis. This was the ninth consecutive quarterly expansion in U.S. real GDP growth.

At 2.8%, third-quarter growth was solid, although it was modestly slower than the 3% real GDP growth rate in the second quarter of 2024.

This report provides further hope for a no-landing or soft-landing economic scenario in the U.S. despite relatively high interest rates. The ongoing strength of the labor market remains a significant factor supporting U.S. GDP growth.

U.S. real GDP growth slowed to 2.8% in Q3 2024 from 3% in Q2 2024.Gross Domestic Product, Third Quarter 2024 (Advance Estimate), Bureau of Economic Analysis. Retrieved on Oct. 31, 2024, from https://www.bea.gov/news/2024/gross-domestic-product-third-quarter-2024-advance-estimate. Prestige Economics. The Futurist Institute.

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Positive Contributions To Third Quarter GDP

There are four parts of GDP, including consumption, investment, net exports, and government spending. The 2.8% real GDP growth in the third quarter is a sum of the changes in each of these four series.

On the upside, growth occurred across consumption, investment, and government spending. Consumption added 2.46 percentage points to GDP, while government spending added 0.85 percentage points, and investment added 0.07 percentage points.

On the downside, net exports fell for a third consecutive quarter, deducting 0.56 percentage points from GDP. A relatively strong dollar has been weighing on net exports, making imports relatively cheaper to buy domestically while also making U.S. exports more expensive for foreign buyers.

Despite the negative impact of net exports, overall GDP growth was solid in the third quarter. Moreover, key drivers of future U.S. economic growth are currently positive.

Future Expectations

One gauge of future U.S. real GDP growth is the Atlanta Fed’s GDPNow series, which is an adaptive economic model based on the most recently available economic data for a given quarter.

On October 31, GDPNow reflected a likely 2.7% real GDP growth rate for Q4 2024, based on U.S. economic data available through October 31.

The Atlanta Fed GDPNow for Q4 2024 reflects a likely Real GDP growth rate of 2.7% as of data ... [+] available on October 31, 2024.GDPNow, The Federal Reserve Bank of Atlanta. Retrieved on October 31, 2024 from https://www.atlantafed.org/cqer/research/gdpnow. The Futurist Institute. Prestige Economics.

Policy Expectations

Even though U.S. growth has been solid and among the strongest growth rates of any advanced economy in the world, the U.S labor market has slowed over the past year. This is why the Fed is still likely to cut interest rates by 0.25% on November 7 and again on December 18.

What do you think of the Q3 2024 U.S. GDP report?

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