U.S. GDP Defies Odds: 3.3% Q2 Growth Holds Strong Against Tariffs and Rate Hikes

Economic resilience meets monetary pressure head-on

The Growth Engine Keeps Running

Despite facing dual headwinds of escalating trade tariffs and aggressive interest rate increases, the U.S. economy posted a robust 3.3% expansion in the second quarter. That revised figure tells a story of underlying strength that even the Fed's tightening cycle couldn't derail.

Manufacturing and Consumption Power Through

Supply chains adapted, consumers kept spending, and businesses found ways to navigate the new cost environment. The numbers suggest the economy developed some serious immunity to traditional monetary policy medicine—much to the frustration of economists who predicted a sharper slowdown.

Meanwhile on Wall Street...

Bankers are probably scratching their heads wondering why their recession playbooks didn't work this time—maybe they forgot that real economies sometimes behave unlike their spreadsheet models.

Key Takeaways

• The U.S. economy grew at an annual rate of 3.3% in the second quarter, more than the 3% growth initially reported last month.
  
• The uptick signaled that the economy is holding up better than previously thought against the headwinds of President Donald Trump's tariffs and the Federal Reserve's high interest rates.
  
• The improvement in the GDP relieves some of the pressure on the Fed to cut interest rates to boost the economy and job growth.
  

The U.S. economy is staying more resilient to tariffs and high interest rates than it seemed last month.

The Gross Domestic Product grew at an annual rate of 3.3% in the second quarter, the Bureau of Economic Analysis said Thursday. That was revised higher than the 3% annual rate in the BEA's advance report last month, and a rebound from the 0.5% decline in the first quarter. The data is due to be revised one more time before being finalized.

The GDP, an important barometer of the economy's health, is painting a somewhat murky picture because of the impact of President Donald Trump's tariffs. Companies snapping up imports in the first quarter in advance of tariffs lowered the GDP, while a sharp pullback in imports during the second quarter raised it. Imports are subtracted from the GDP so they won't be double-counted.

Still, the upward revision of the GDP was a sign that the economy is staying more resilient than previously thought.

Notably, a measure of demand for goods and services ROSE faster than initially reported. "Real final sales to private domestic purchasers" rose 1.9% in the second quarter, up from the 0.7% initially reported. That measure tracks consumer spending and private fixed investment.

"After the initial release, there were concerns that the domestic economy was slowing quite sharply," Richard Flax, chief investment officer at Moneyfarm, wrote in a commentary. "But these latest data suggest that the economy is a bit stronger than initially feared."

Economists and Federal Reserve officials have been scouring economic data for signs that the economy and job market are struggling under Trump's import taxes and the Fed's high interest rates.

A sharp slowdown in job growth this summer has pressured the Fed to cut its benchmark interest rate when its policy committee next meets in September. However, the upswing in GDP growth improves the outlook and removes some of the pressure for a rate cut.

"[There is] no urgency for policymakers, if one was looking strictly at the data," Jennifer Lee, senior economist at BMO Capital Markets, wrote in a commentary.