VIENNA, Va.–Strong economic numbers do not mean the Fed has to raise rates, as core inflation remains in the target zone, according to an economist for Navy Federal Credit Union.
The newly released GDP report shows United States gross domestic product rose at an annual rate of 4.1% in the second quarter, up from 2.2% in the first three months of the year. Consumer spending rose 4%, with inflation at 1.8%.
"Consumers once again carried the heaviest load in the economy, with their spending accounting for the lion's share of the 4.1% growth in the second quarter,” said Robert Frick, corporate economist for Navy FCU. “Even backing out the boosts from tax reform and government spending, which would drop GDP below 4% and likely to around 3.7% to 3.8%, this was an excellent quarter.
"And to further underscore we're in a Goldilocks zone, core inflation came in at 2%, meaning the Fed will have no reason to raise rates more quickly and cool off the economy,” added Frick.
According to Frick, the “keys” now to keeping GDP above 3.5% for 2018 will be continued good consumer spending, but also a lift in business capital expenditures.
"But wage growth remains a continuing concern,” Frick added. “Real wage growth–growth minus inflation–hit zero this summer, meaning on average Americans are not seeing a boost in their paychecks. This is highly unusual this late in an economic expansion. For consumers to keep contributing to growth, real wages will have to increase."
President Trump called the GDP numbers “amazing” and objected to those who say the Q2 numbers aren’t sustainable.
“This isn’t a one-time shot,” Trump said. “I happen to think we’re going to do extraordinarily well in our next report, next quarter.”