The U.S. economy grew 2.6 percent in the second quarter, according to the U.S. Commerce Department’s Bureau of Economic Analysis – a sign that the Federal Reserve may hold interest rates where they are for the rest of 2017.
An acceleration of personal consumption growth – up 2.8 percent in the quarter — accounted for nearly three-fourths of the second-quarter gains, said Curt Long, chief economist and vice president of research at the National Association of Federally Insured Credit Unions.
“The one sizable drag came from residential investment as housing starts slowed during the quarter,” Long said.
He added, however, that construction showed an uptick in June and is expected to continue to expand in the second half of the year.
“As such, the Fed will likely forego another rate hike in 2017 unless inflation strengthens,” Long said. “The performance of the economy and labor market warrant a modest tightening of monetary policy, but the Fed is likely to begin tapering asset purchases in September, which will suffice for now.”
Personal consumption expenditure inflation, the Fed’s preferred inflation metric, decreased from a downwardly revised 2.2 percent in the first quarter to 0.3 percent in the second quarter. Core PCE inflation (excluding food and energy) fell from a downwardly revised 1.8 percent in the first quarter to 0.9 percent in the second quarter. This marks the slowest core price increase since the first quarter of 2015.