Finance

GDP surges by 2.8%, giving hope for rate cuts in September

Published

10 months ago

July 30, 2024

Business Finance News

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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INFLATION IS WHY MANY AMERICANS PLAN TO DELAY RETIREMENT: SURVEY

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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83% OF AMERICANS CONSIDER HOMEOWNERSHIP AN ESSENTIAL LIFE MILESTONE: SURVEY

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.

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HOUSING AFFORDABILITY TOP CONCERN FOR YOUNGER VOTERS THIS PRESIDENTIAL ELECTION: SURVEY

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Finance

Stocks making the biggest moves midday: WOOF, TSLA, CRCL, LULU

Published

1 day ago

June 6, 2025

Business Finance News

Finance

Swiss government proposes tough new capital rules in major blow to UBS

Published

1 day ago

June 6, 2025

Business Finance News

A sign in German that reads “part of the UBS group” in Basel on May 5, 2025.

Fabrice Coffrini | AFP | Getty Images

The Swiss government on Friday proposed strict new capital rules that would require banking giant UBS to hold an additional $26 billion in core capital, following its 2023 takeover of stricken rival Credit Suisse.

The measures would also mean that UBS will need to fully capitalize its foreign units and carry out fewer share buybacks.

“The rise in the going-concern requirement needs to be met with up to USD 26 billion of CET1 capital, to allow the AT1 bond holdings to be reduced by around USD 8 billion,” the government said in a Friday statement, referring to UBS’ holding of Additional Tier 1 (AT1) bonds.

The Swiss National Bank said it supported the measures from the government as they will “significantly strengthen” UBS’ resilience.

“As well as reducing the likelihood of a large systemically important bank such as UBS getting into financial distress, this measure also increases a bank’s room for manoeuvre to stabilise itself in a crisis through its own efforts. This makes it less likely that UBS has to be bailed out by the government in the event of a crisis,” SNB said in a Friday statement.

‘Too big to fail’

UBS has been battling the specter of tighter capital rules since acquiring the country’s second-largest bank at a cut-price following years of strategic errors, mismanagement and scandals at Credit Suisse.

The shock demise of the banking giant also brought Swiss financial regulator FINMA under fire for its perceived scarce supervision of the bank and the ultimate timing of its intervention.

Swiss regulators argue that UBS must have stronger capital requirements to safeguard the national economy and financial system, given the bank’s balance topped $1.7 trillion in 2023, roughly double the projected Swiss economic output of last year. UBS insists it is not “too big to fail” and that the additional capital requirements — set to drain its cash liquidity — will impact the bank’s competitiveness.

At the heart of the standoff are pressing concerns over UBS’ ability to buffer any prospective losses at its foreign units, where it has, until now, had the duty to back 60% of capital with capital at the parent bank.

Higher capital requirements can whittle down a bank’s balance sheet and credit supply by bolstering a lender’s funding costs and choking off their willingness to lend — as well as waning their appetite for risk. For shareholders, of note will be the potential impact on discretionary funds available for distribution, including dividends, share buybacks and bonus payments.

“While winding down Credit Suisse’s legacy businesses should free up capital and reduce costs for UBS, much of these gains could be absorbed by stricter regulatory demands,” Johann Scholtz, senior equity analyst at Morningstar, said in a note preceding the FINMA announcement.

“Such measures may place UBS’s capital requirements well above those faced by rivals in the United States, putting pressure on returns and reducing prospects for narrowing its long-term valuation gap. Even its long-standing premium rating relative to the European banking sector has recently evaporated.”