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Today, second-quarter GDP numbers were released. Surprising everyone (why it was a surprise, I don't know), Q2 GDP climbed at an annual rate of 3% instead of the expected 2%. This reverses a negative GDP print in Q1 that ignited brief fears of a Trump tariff-fueled recession. (I heard "Smoot-Hawley" more in April and May than in the past 20 years.) But let's look more closely. Both quarters were heavily impacted by the tariffs and threats of tariffs. Q1 saw a surge in imports as businesses tried to front-run expected tariffs. Q2 saw a reversal, with imports dropping dramatically. So it seems that trade policy and fears of worst-case scenarios whipsawed imports across both quarters. We can eliminate that by looking at the first half as a whole.
Annualized, real GDP (that's inflation-adjusted GDP) in the last quarter of 2024 was 23.542 trillion. At the end of Q2 2025, it was 23.685 trillion. That's an annualized change of +$143 billion, or 0.61%. And that growth is anemic at best. (The technical economist terms are "piss-poor" or "sucks.") The 0.61% change is less than half the rate of growth in the last half of 2024 when it gained 1.37%. When the Biden/Harris/whomever-was-driving economy outperforms yours, that's a problem. Three months ago, I warned against panicking about the negative GDP report for Q1. Today, I'm cautioning not to get overamped about the reported 3% in Q2. The economy is growing...but very slowly. I think most businesses are uncertain yet as to how trade policy shakes out. It could be great. And judging by Trump v1.0, I have faith it will be. But the uncertainty has business in a holding pattern.
Addendum...An open question: Trump has GOT to know that his continued public excoriation of Fed Chairman Powell makes it LESS likely, not more, that Powell will lower rates. Is Trump, then, secretly happy that rates are unchanged? The trade negotiations have created a situation that is already very fluid. Better, maybe, to minimize the number of variables?
Discussion (40)
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yes. and big businesses are investing in de-risking their supply chains. That probably does not increase productivity.
The Fed funds rate is ~ 4.3%, which is way above inflation (~2%; TIPS spread is 2.44%). Powell has both feet on the brakes of the economy.
That said, why is 10 year treasury rate 4.372 today? Why does it cost so much for the Treasure to borrow? Has our national debt exceeded the ready supply of savings? This is what is causing high mortgage rates and is the turd in the economies punch bowl.
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True enough. But Trump's behavior - publicly humiliating Powell - only makes it LESS LIKELY that Powell will lower rates. And Trump knows this! Trump is not a stupid man. So why is he doing it?
A) He wants rates to remain unchanged for some reason and is using reverse psychology on Powell. It's the classic "Don't throw me in the briar patch!" play. What might that reason be?
or
B) He knows Powell is going to leave rates unchanged no matter what, so Trump figures he can score some political points by beating him up.
That's all I can come up with ... but I'm not very imaginative.
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I do not accept that berating Powell changes the likelihood of a rate change. There is a committee that votes and I expect that the dollar exchange rate speaks louder than Trump. For why, I do think that Trump expects that criticizing Powell will affect the entire committee. Having a fall guy is no good for a bad economy is no good. The president always gets the credit or blame and Trumps wants to win now and lower interest rates will help in the short term. I hope that Trump fires Powell for cost overruns and losing money and then audits the entire mess as part of Powell's punishment.
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After getting berated by Trump, neither Powell nor the rest of the committee are likely to lower rates. They’ll feel like they have to defend the Fed’s independence. They won’t want to be perceived as knuckling under to pressure from a politician. So unless the case for rate cuts is unequivocal and overwhelming … “No soup for you.”
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I think the Fed’s strategy is to keep the economy afloat in a sea of greenbacks. M2 is steadily increasing again, while at the same time minimizing the risk of inflation with high rates.
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