U.S. GDP, PCE, and Fed Rate Decision Commentary: Will U.S. Stocks Continue to Rise?

TradingKey - On 30–31 July 2025, the United States released its latest GDP and PCE data, while the Federal Reserve announced its interest rate decision during the same period. The annualised real GDP growth rate for the second quarter turned positive from negative, significantly surpassing market expectations of 2.4% to reach 3%. Both headline and core PCE inflation rates for June rose compared to May, slightly exceeding expectations. Additionally, the Federal Reserve maintained its policy interest rate at 4.5%, aligning with market expectations. The stronger-than-expected GDP performance in Q2 was primarily driven by smooth progress in tariff negotiations and a notable recovery in net exports due to easing import rush phenomena.

However, real consumption and investment continued to decline, indicating that the intrinsic growth momentum of the U.S. economy has not improved. In terms of inflation, June’s headline and core PCE climbed to 2.6% and 2.8%, respectively. Two key factors drove this rise: first, seasonal spikes in consumer spending fuelled price increases; second, corporate import rush activity in June boosted PCE growth. With PCE showing signs of rebounding, the Federal Reserve’s choice to keep interest rates steady at 4.5% on 31 July 2025 seems justified. Moving forward, ongoing softness in domestic demand is likely to persist, curbing inflation from the demand side. The combination of subdued growth and low inflation sets the stage for the Federal Reserve to potentially restart rate reductions in September.

Taken together, the start of a rate-cutting phase, alongside the short- to medium-term effects of the “One Big Beautiful Bill Act”, is expected to counterbalance the drag from economic sluggishness, paving the way for continued gains in U.S. equities.

Source: Mitrade

Main Body

Between 30 and 31 July 2025, the United States released its latest GDP and PCE data, while the Federal Reserve announced its interest rate decision during the same period. The second quarter’s annualised real GDP growth rate shifted from negative to positive, significantly exceeding market expectations of 2.4% by reaching 3%. Compared to May, both headline and core PCE inflation rates for June increased, slightly surpassing forecasts. Additionally, the Federal Reserve kept its policy interest rate steady at 4.5% this month, in line with market expectations (Figure 1).

Figure 1: Market Consensus Forecasts vs. Actual Data

Source: Refinitiv, TradingKey

The second quarter GDP performance exceeded expectations (Figure 2), driven primarily by a significant recovery in net exports. In the first quarter, a large-scale import rush led to a substantial trade deficit, resulting in negative GDP growth. However, in Q2, smoother progress in tariff negotiations alleviated the import rush, contributing to a sharp rebound in real GDP growth. Nevertheless, this does not indicate an improvement in the underlying growth momentum of the U.S. economy. Both real consumption and investment continued to decline. Specifically, slower wage growth in the U.S. labour market, coupled with increased household savings due to tariff uncertainties, has dampened consumer confidence. This is reflected in the data, with the year-over-year growth rate of real final sales dropping from 2.7% to 2.4%. Additionally, fixed asset investment continued to weaken, with negative growth in real estate and construction sectors, suggesting that the Trump administration’s manufacturing repatriation initiatives have yet to yield significant results.

Figure 2: U.S. Real Annualised GDP (%, q-o-q)

Source: Refinitiv, TradingKey

Following several months of declining inflation rates, U.S. inflation data saw an upturn since May. According to the latest June figures, headline and core PCE increased to 2.6% and 2.8%, respectively, each exceeding market forecasts by 0.1 percentage points (Figure 3). Two main factors explain this rise. First, seasonal consumption trends contributed significantly. The June-to-September period typically experiences a surge in consumer spending driven by summer vacations, Independence Day festivities, and pre-school shopping, which accelerated PCE growth. Second, despite advancements in tariff negotiations, tariff-related pressures persisted. In anticipation of tariff implementation, June likely witnessed early consumer spending and price hikes, further boosting PCE figures.

Figure 3: U.S. PCE (%, y-o-y)

Source: Refinitiv, TradingKey

Owing to weak economic conditions, the Federal Reserve began lowering interest rates on 19 September 2024, cutting them by a cumulative 100 basis points by 19 December 2024 (Figure 4). In 2025, the U.S. economy showed signs of resilience, leading the Fed to halt further rate reductions and keep the policy rate steady at 4.5%. With PCE inflation showing signs of rising, the Federal Reserve’s choice to maintain unchanged rates on 31 July 2025 is reasonable and well-supported.

Figure 4: Fed Policy Rate (%)

Source: Refinitiv, TradingKey

Looking forward, although trade talks with partners are progressing well, the lacklustre domestic demand seen in Q2 is expected to continue through the latter half of 2025, clouding the U.S. economic outlook. Decelerating growth should keep inflation in check from the demand side, making significant reflation risks unlikely. Over the next few months, with weakening economic indicators and inflation moving closer to the 2% target, the Federal Reserve is likely to restart rate cuts in September. On the fiscal side, the “One Big Beautiful Bill Act”, especially its tax relief measures, is poised to bolster U.S. stocks in the near term. Taken together, the combined impact of lower interest rates and tax reductions is expected to counterbalance the adverse effects of economic slowdown, paving the way for sustained gains in U.S. equity markets.

TradingKey - The United States is set to release its latest GDP and PCE data on 30–31 July 2025, with the Federal Reserve’s interest rate decision expected concurrently. Market consensus anticipates that the annualized real GDP growth rate for the second quarter will turn positive, reaching approximately 2.5% quarter-on-quarter. Meanwhile, both headline and core PCE inflation for July are projected to show a slight uptick compared to June. Additionally, markets expect the Federal Reserve to maintain its policy rate at 4.5% at the end of July. We align with these prevailing forecasts. The anticipated robust GDP growth in Q2 is primarily driven by resilient demand, strong supply-side support, proactive fiscal policies, and shifting monetary policy expectations. For July, both headline and core PCE are expected to rise by 0.3%, an increase from June’s figures, largely due to seasonal consumption patterns and the additional consumption and price adjustments triggered before tariffs taking effect. Given the solid fundamentals of the U.S. economy and signs of a PCE rebound, we believe the Federal Reserve is unlikely to resume its rate-cutting cycle on 31 July. Looking ahead, we expect the Fed to restart rate cuts in September 2025. Supported by a more accommodative monetary policy and the impact of the “One Big Beautiful Bill Act”, U.S. equities are likely to have further room for growth.

Source: Mitrade

Main Body

On 30–31 July 2025, the United States will release its latest GDP and PCE data, alongside the Federal Reserve’s interest rate decision. Market consensus projects that the annualized real GDP growth rate for the second quarter will shift from negative to positive, potentially reaching 2.5% quarter-on-quarter. Additionally, both headline and core PCE inflation for July are expected to show a moderate increase compared to June. Markets also anticipate that the Federal Reserve will maintain its policy rate at 4.5% by the end of July (Figure 1). We concur with these prevailing forecasts.

Figure 1: Consensus Forecasts

Source: Refinitiv, TradingKey

The anticipated robust growth in real GDP for the second quarter of 2025 (Figure 2) is driven by four key factors: The first is resilient demand. The unemployment rate remains stable at low levels, and although wage growth has moderated, it continues to outpace inflation, indicating rising real household income. This supports sustained consumer spending, with the U.S. Consumer Confidence Index showing a rebound in Q2. The second is strong supply-side support. The inventory cycle reversed in Q2, shifting from negative growth in Q1 to positive growth, primarily due to retailers restocking automotive and related components. Additionally, equipment investment maintained its upward trend, driven by transportation equipment (e.g., aircraft) and communication equipment (e.g., AI servers), reflecting ongoing corporate investments in supply chain restructuring and digital transformation. The third is proactive fiscal policy. As fiscal funds are gradually deployed, state and local government spending on infrastructure projects, such as roads and bridges, has started increasing. This has provided stable order support for the construction and manufacturing sectors. The forth is shifting monetary policy expectations. Although the Federal Reserve has maintained its policy rate at 4.5% in recent months, market expectations for the onset of a rate-cutting cycle have strengthened. These anticipations of a more accommodative monetary policy are already stimulating production, investment, and consumption.

Figure 2: U.S. Real Annualized GDP (%, q-o-q)

Source: Refinitiv, TradingKey

After several months of decline, the year-over-year U.S. PCE inflation rate rebounded in June. On a month-over-month basis, both headline and core PCE are projected to reach 0.3% in July, marking an increase from June’s figures (Figure 3). This uptick is driven by two primary factors: The first is seasonal consumption patterns. July is typically a peak spending season, driven by summer travel, Independence Day holidays, and back-to-school shopping (e.g., clothing and electronics). These factors are likely to significantly boost consumer spending, contributing to a faster month-over-month PCE increase. The second is tariff-related pressures. The additional consumption and price adjustments in July triggered before tariffs take effect. Tariffs are expected to raise the cost of imported goods, which in turn could further elevate PCE inflation, likely explaining the anticipated rise in July’s PCE figures.

Figure 3: U.S. PCE (%)

Source: Refinitiv, TradingKey

In response to signs of economic weakness, the Federal Reserve initiated a rate-cutting cycle on 19 September 2024, with a cumulative reduction of 100 basis points by 19 December 2024 (Figure 4). Since the start of 2025, the U.S. economy has shown notable resilience, prompting the Fed to pause rate cuts and maintain the policy rate at 4.5%. Given the current strength of U.S. economic fundamentals and emerging signs of a PCE inflation rebound, we anticipate that the Federal Reserve will have no compelling reason to resume rate cuts at its 31 July 2025 meeting.

Figure 4: Fed Policy Rate (%)

Source: Refinitiv, TradingKey

Looking ahead, the U.S. is expected to continue escalating tariffs, likely prompting retaliatory measures from trading partners, which could dim the outlook for the U.S. economy. While higher tariffs may exert upward pressure on inflation from the supply side, slower economic growth is anticipated to suppress inflation from the demand side. The interplay of these forces suggests a low likelihood of significant reflationary risks in the near term. In the coming months, as the U.S. economy softens and inflation trends back toward the Federal Reserve’s 2% target, we expect the Fed to resume its rate-cutting cycle in September 2025. On the fiscal policy front, the "One Big Beautiful Bill Act"—particularly its tax reduction provisions—is likely to provide a short- to medium-term boost to U.S. equities. Overall, the combined effect of anticipated rate cuts and tax reductions is expected to outweigh the impact of economic slowdown, supporting further upside potential for U.S. stocks.

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