Immaculate disinflation puts the Federal Reserve in Purgatory.” Breakingviews, the analysis service of the Reuters news agency, spares no wit or provocativeness in its headlines. That one, one day before the Federal Reserve’s decision to Raising interest rates to their highest level since 2001 reflected the paradox that, despite this hardening of money prices, the economy continues to grow, employment is at all-time highs, and inflation is falling – that is, disinflation is rising -.
Now, it has not been the immaculate disinflation, but the Holy GDP. The provisional data for the second quarter, published yesterday, reveals, in the interannual rate, an acceleration in growth in relation to the first. It is another great paradox of this economy. The economy is not only bearing the cumulative effect of the biggest monetary tightening in the last two decades.
The data reveals it. GDP grew by 2.4% in the annualized quarterly rate in the second quarter, four tenths above the figure for the first quarter. These are annualized quarterly data, which are obtained by taking the quarterly growth and estimating what it would be like if it were maintained throughout the year. It is, therefore, a different system from the dominant ones in Europe (quarterly or year-on-year) but which do reveal the trend of the economy.
And the trend is clearly positive. The market had anticipated a growth of 2%, according to the newspaper ‘The Wall Street Journal’, so the predictions of a recession have again been postponed. It is not that the experts do not believe that the US will not enter a recession, but they do believe that it will not this year. Although it is no less true that they have been saying for two years that the recession is inevitable in order to postpone it indefinitely. All in all, the data is partial, since it does not include all private consumption – which in the US is key to GDP – nor the foreign sector, which introduces great volatility into the indicator.
Business investment was the main driver of the expansion, although private consumption, which accounts for 70% of US GDP – a figure almost without equal in the world – also performed well, which seems to indicate that the recovery will continue. Leading indicators such as the University of Michigan’s Consumer Sentiment Index and Economic Conditions are absolutely skyrocketing, augering more growth.
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