29 Sept 2025
The Q2 GDP data underwent an upward revision to 3.8%, primarily fueled by robust household consumption and reduced imports, while August durable goods orders increased to $312 billion, significantly boosted by transportation equipment. These positive macroeconomic indicators suggest a resilient economy, yet Federal Reserve officials voice ongoing concerns about inflation and a potentially cooling labor market, maintaining a cautious outlook on future policy adjustments.
The Q2 GDP data underwent revisions, ultimately rising to 3.8%, a half-percent increase from previous figures. This growth primarily stemmed from a decrease in imports and an increase in household consumption, with some offsetting effects from reduced investment and exports, highlighting robust consumer spending.
Durable goods orders for August increased to $312 billion after two consecutive monthly declines, with a 1.4% rise excluding transportation and a 1.9% increase excluding defense. The significant driver behind this growth was an $8 billion, or 8%, surge in transportation equipment orders after two months of decline, pushing orders in this sector to $110 billion.
Both the GDP and durable goods reports provided positive signals to the market, with GDP exceeding expectations and orders showing improvement. The increase in household consumption and its impact on GDP received more attention, underscoring the sustained strength of consumer spending despite tariffs, price hikes, and some labor market softening.
Federal Reserve official Goolsbee observed a cooling labor market and an upward trend in inflation, expressing concern over the current inflationary trajectory. He suggested that further rate cuts might be possible if the risk of stagflation diminishes, highlighting an unusual situation regarding employment and inflation risks and the challenging balance between price control and maximizing employment.
Federal Reserve official Schmid noted that rate cuts have been appropriate and labor market risks have been mitigated, indicating the Fed is nearing its targets. However, he also pointed to increased labor market risks and persistently high inflation, stating that the current labor market is largely in equilibrium while Fed members remain focused on the nature and persistence of inflation.
While market participants perceive hints of potential further rate cuts, some Fed members, like Bostic, see no need for additional easing. The labor market is described as somewhat weakened yet generally strong or balanced, characterized by low layoffs and unemployment, suggesting an overall stable unemployment rate.
Fed member Mayeran holds a dissenting view, strongly advocating for more aggressive rate reductions, even proposing a 1.5% interest rate cut this year. Mayeran's stance, which is considerably more dovish than that of most members, is influenced by the views of former President Trump.
The market anticipates the release of the Personal Consumption Expenditures (PCE) data for the United States, which is the Federal Reserve's preferred inflation gauge. There is keen interest in whether the PCE will align with expectations or present an uncomfortably high figure.
Robust household consumption continues to drive economic strength, affirming strong consumer spending despite challenges like tariff impacts, price increases, and some labor market weakening.
| Category | Data/Official | Key Insight |
|---|---|---|
| Macroeconomic Data | Q2 GDP Revision | Revised to 3.8% due to increased household consumption and reduced imports, demonstrating strong economic resilience. |
| Macroeconomic Data | August Durable Goods Orders | Increased to $312 billion after two declines, primarily driven by an 8% surge in transportation equipment orders. |
| Market Sentiment | Overall Data Impact | Both reports were positive; household consumption's impact on GDP was more significant than durable goods orders. |
| Fed Official Perspective | Goolsbee's Comments | Labor market cooling and rising inflation are concerns; potential for cuts if stagflation risk declines, highlighting unusual risks. |
| Fed Official Perspective | Schmid's Comments | Rate cuts were appropriate, Fed is near targets, but inflation remains too high and labor market risks persist. |
| Fed Dissenting View | Mayeran's Stance | Advocates for a substantial 1.5% interest rate cut this year, aligning with former President Trump's outlook. |
