Finance
GDP surges by 2.8%, giving hope for rate cuts in September
With GDP increasing 2.8% annually, this signals a strong economy. (iStock )
As a welcome surprise, the gross domestic product (GDP) increased 2.8% annually in the second quarter, an advance estimate released by the U.S. Bureau of Economic Analysis found. Generally, a GDP between 2% and 3% signifies a strong U.S. economy, so this is good news for the overall economic outlook. In the first quarter, GDP increased by just 1.4%.
As the GDP increases and the economy evens out, it’s more likely that the Federal Reserve will cut interest rates. This sudden jump in economic growth is signaling that rate cuts may be on the horizon.
“GDP exceeded expectations in the second quarter, restoring faith that the economy is easing into a sustainable level of growth,” America’s Credit Unions Deputy Chief Economist Curt Long said in a statement.”Recent statements from Federal Reserve officials confirm that a rate cut is squarely in view. However, such action is not needed to ward off a recession but is rather a response to the moderation in inflation.”
The increase in real GDP can largely be attributed to an increase in consumer spending, as well as private inventory investments and nonresidential fixed investments.
Consumer spending increased across both the service and goods industries. Health care was one of the higher spend categories in the service industry, along with housing and recreation services. As for goods, motor vehicles and parts contributed most to the GDP growth. Furnishings, household equipment, gasoline and other energy goods also contributed.
“Both an increase in consumer spending on durable goods and business spending on inventories accounted for a substantial part of last quarter’s expansion,” said Mike Fratantoni, Mortgage Bankers Association (MBA) senior vice president and chief economist.
“Weaker net exports reflect a global economy that continues to operate in a lower gear as well as a stronger dollar,” Frantantoni said. “While top line growth is above the pace needed to keep the unemployment rate from rising further, the components do suggest the economy may slow from here.”
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Fed could cut interest rates in September
Consumers have been waiting for federal funds rate cuts that could lower interest rates on products such as mortgages, student loans and other loans. At the beginning of the year, consumers were told there would be an estimated six rate cuts by the end of the year, but that has grown increasingly unlikely.
Thanks to a higher-than-expected GDP report, economists believe September will be the first time the Federal Reserve cuts rates. These experts estimate there’s a 99.8% chance rates will be cut in September.
There’s also a high chance there will be a few more rate cuts by the end of the year. Experts say there’s a 97.4% chance of at least two more cuts by the end of December.
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Recession fears still linger for many Americans
Despite signs that the economy is heading in the right direction, there are still lingering fears that a recession is here or at least on the horizon. About three in five people believe the U.S. is currently in a recession, according to research from Affirm.
The survey asked 2,000 Americans why they lacked confidence in the current economy. Unsurprisingly, inflation and rising costs were the most common reason (68%) consumers believe the U.S. is in a recession. Another 50% think the U.S. is in the midst of a recession because of family members and friends constantly complaining about money problems.
Most respondents believe the recession started about 15 months ago, and don’t expect it to end anytime soon. Consumers believe the economy won’t officially start to recover until at least July 2025. Again, inflation is largely to blame for why these respondents believe there’s currently a recession.
About 68% of Americans said inflation is negatively affecting their future financial plans, making it difficult for them to save for bigger purchases.
“With confidence in the U.S. economy at a low point, consumers are urgently seeking ways to feel in control of their finances,” said Vishal Kapoor, Affirm senior vice president of product. “Amidst these levels of uncertainty and doubt, we believe that the antidote to the current ‘vibecession’ is greater choice and transparency in how people manage their finances.”
In an attempt to stay in control of their finances, 54% of Americans have or would consider buy now, pay later options. Consumers surveyed noted that BNPL helps them better manage their day-to-day budget.
Personal loans with low interest rates are also strong options for consumers who need financing with low monthly payments. When it comes to personal loan shopping, Credible can do the heavy lifting for you. With the click of a button, you can view multiple lenders, rates, and terms in one spot.
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‘The Big Money Show’ co-hosts discuss buy now, pay later spending options and the impact it will now have on your credit score.
Small, everyday purchases like a meal from DoorDash are now able to be financed through eat now, pay later options — a practice that some experts deem “predatory.”
“You’ve got to have enough sense to not follow the urge to finance a taco, okay? You have got to be an adult,” career coach Ken Coleman told “The Big Money Show,” Wednesday.
“This is predatory, and it’s going to get a lot of people in deep trouble.”
RISKS OF BUY NOW, PAY LATER: ‘TICKET TO OVERSPENDING,’ EXPERT SAYS
DoorDash and Klarna are now partnering up to extend buy now, pay later options to consumers. (Reuters, Getty / Getty Images)
Financial wellness experts are continuously sounding the alarm to cash-strapped consumers, warning them of the devastating impact this financial strategy could have on their credit score as some lenders will begin reporting those loans to credit agencies.
Consumers may risk getting hit with late fees and interest rates, similar to credit cards.
“So your sandwich might show up on your FICO score, especially if you pay for it late,” FOX Business’ Jackie DeAngelis explained.
EXPERTS WARN HIDDEN RISKS OF BUY NOW, PAY LATER
Major players like Affirm, Afterpay, and Klarna have risen to prominence at a time when Americans continue to grapple with persisting inflation, high interest rates and student loan payments, which resumed in October 2023 after a pause due to the COVID-19 pandemic.
Ramsey Solutions personal finance expert and ‘The Ramsey Show’ co-host George Kamel discusses the ‘buy now, pay later’ craze and the trend that celebrates the financial benefits of being childless.
“The Big Money Show” co-host Taylor Riggs offered a different perspective, suggesting that company CEOs have a “duty” to attract as many customers as they want.
“Unfortunately for me, this always comes down to financial literacy — which I know is so much in your heart about training people to save now by later,” she told Coleman, who regularly offers financial advice to callers on “The Ramsey Show.”
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Coleman continued to come to the defense of financially “desperate” consumers, arguing that companies are targeting “immature” customers.
“I’m for American businesses being able to do whatever they want to do under the law. That’s fine. But let’s still call it what it is: it’s predatory, and they know who their customers are,” Coleman concluded, “And I’m telling you, they’re talking about weak-minded, immature, desperate people.”
FOX Business’ Daniella Genovese contributed to this report.
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