US inflation eases in second quarter, economic growth gains momentum

US Economy: The US economy grew faster than anticipated in the second quarter, while inflation eased, maintaining expectations of a September interest rate cut from the Federal Reserve.

Gross domestic product (GDP) increased at an annualised rate of 2.8 per cent last quarter, according to the Commerce Department's Bureau of Economic Analysis' advance estimate of second-quarter GDP on Thursday. Economists polled by Reuters had predicted a 2.0 per cent growth rate, with estimates ranging from 1.1 per cent to 3.4 per cent. In the first quarter, the economy grew at a 1.4 per cent rate.

US central bank officials consider a 1.8 per cent growth rate as the non-inflationary benchmark.

Despite substantial rate hikes from the Fed in 2022 and 2023, the US economy continues to outperform its global peers, supported by a resilient labour market even as the unemployment rate has risen to a two-and-a-half-year high of 4.1 per cent.

The personal consumption expenditures (PCE) price index, excluding volatile food and energy components, increased at a 2.9 per cent rate after surging at a 3.7 per cent pace in the first quarter. This development is welcome news for US central bank officials ahead of their two-day policy meeting next week.

The core PCE price index is one of the inflation measures monitored by the Fed for its 2 per cent target.

The Fed has maintained its benchmark overnight interest rate in the 5.25 per cent-5.50 per cent range for the past year and has raised its policy rate by 525 basis points since 2022. Financial markets anticipate three rate cuts this year, starting in September.

Despite robust economic growth, the outlook for the second half of the year remains uncertain. A slowing labour market is expected to impact wage gains.

The saving rate is well below its pre-pandemic average, and economists estimate that the majority of the Fed's rate hikes are yet to be felt. Slowing state and local government revenues could also reduce spending.

Additionally, concerns about new tariffs persist, as businesses may front-load imports if former President Donald Trump is re-elected in November's presidential election.

Nevertheless, a recession is not anticipated, with monetary policy easing expected this year.

(With Reuters inputs)