The Bureau of Economic Analysis (BEA) released its advance estimate for second quarter 2025 real GDP growth, showing a seasonally adjusted annual rate of 3 percent. This marks a significant rebound from the -0.5% decline in the first quarter. The shift was largely attributed to changes in net exports and inventory investment, which were affected by ongoing international trade tensions and tariffs. These factors moved from being a drag on growth in Q1 to providing support in Q2.
Consumer spending increased at a 1.4 percent rate, which is below historical averages but higher than previous quarters. Business investment growth slowed sharply, dropping from 10.3 percent in Q1 to 1.9 percent in Q2.
Inflation pressures appeared to ease somewhat, with the core consumer spending price index rising at a 2.5 percent annual rate compared to 3.5 percent in the first quarter. This development brings inflation closer to the Federal Reserve’s target.
The Federal Reserve announced it would keep its federal funds rate target range unchanged at 4.25–4.5 percent, maintaining this level since January. The decision included two dissents among the twelve-member Federal Open Market Committee (FOMC), an uncommon occurrence as both dissenters were Fed Governors rather than regional bank presidents.
Fed Governors Bowman and Waller had previously advocated for faster interest rate cuts than those supported by Chair Powell and most committee members, marking the first time in over three decades that two governors dissented from the majority.
During his press conference after the rate announcement, Chair Powell said: “the FOMC would remain focused on incoming data as it considered future rate decisions.”
Market expectations now point toward a possible 25 basis point cut at the next Fed meeting scheduled for mid-September, with traders assigning a 67 percent chance of a total half-point reduction by year-end according to CME Fed Watch.