WASHINGTON: The US economy grew faster than expected in the second quarter, but inflation subsided, leaving intact expectations of a September interest rate cut from the Federal Reserve.

Gross domestic product increased at a 2.8 percent annualized rate last quarter, the Commerce Department’s Bureau of Economic Analysis said in its advance estimate of second-quarter GDP on Thursday. Economists polled by Reuters had forecast GDP rising at a 2.0 percent rate. Estimates ranged from a 1.1 percent rate to a 3.4 percent pace. The economy grew at a 1.4 percent rate in the first quarter. US central bank officials regard a 1.8 percent pace as the non-inflationary growth rate.

Meanwhile, President Joe Biden hailed robust US growth figures Thursday as proof the country had the world’s “strongest economy,” but said he had “more to do” in his last six months in the White House. Biden, who endorsed Vice President Kamala Harris after his historic decision to drop out of the 2024 election, added in a statement: “The Vice President and I will keep fighting for America’s future.”

The economy, which continues to outperform its global peers despite hefty rate hikes from the Fed in 2022 and 2023, remains supported by a resilient labor market even as the unemployment rate has risen to a 2-1/2-year high of 4.1 percent. The personal consumption expenditures (PCE) price index, excluding the volatile food and energy components, increased at a 2.9 percent rate after surging at a 3.7 percent pace in the first quarter, welcome news for US central bank officials ahead of their two-day policy meeting next week. The so-called core PCE price index is one of the inflation measures tracked by the Fed for its 2 percent target.

The Fed has maintained its benchmark overnight interest rate in the current 5.25-5.50 percent range for the past year. It has hiked its policy rate by 525 basis points since 2022. Financial markets expect three rate cuts this year, starting in September. Despite the solid economic growth pace, the outlook for the second half of the year is hazy. The labor market is slowing, which will impact wage gains.

The saving rate is well below its pre-pandemic average and economists estimate that the bulk of the Fed’s rate hikes is still to be felt. State and local government revenues are also slowing, which could erode spending. There are also worries about new tariffs, which could see businesses front-loading imports if former President Donald Trump is returned to the White House in November’s presidential election. Nonetheless, a recession is not expected, with monetary policy easing anticipated this year.

“We see consumption continuing to be the engine of the economy, continuing to keep economic growth on a relatively strong growth path of around two percent,” economist Matthew Martin of Oxford Economics told AFP.

He said that although unemployment has been edging up, the trend has more to do with entrances into the market rather than layoffs. This means it is not the start of a cycle where unemployment leads to income loss, in turn reducing spending and triggering more job losses. But there remain risks to the economy as unemployment tends to “shoot up” quickly, he said, noting that is not currently an expected outcome.

“That’s a big case to begin cutting rates in September and follow up with one every other meeting from there,” he said of the US Federal Reserve’s policymaking committee. “Maintaining excessively restrictive monetary policy when the labor market appears to be fully back in balance could lead to an undesired weakening of employment growth and the economy,” said EY chief economist Gregory Daco in a recent note. – Agencies