Gold bars to be exempt from tariffs, White House clarifies
Investing.com - The U.S. economy appears to be losing steam, although an inflation-conscious Federal Reserve is likely to leave interest rates unchanged at its gathering this month, according to analysts at Wells Fargo (NYSE:WFC).
Real gross domestic product in the U.S. contracted by 0.5% in the first quarter -- a dip that partly reflected a surge in imports sparked by businesses racing to lock in orders before the implementation of President Donald Trump’s elevated tariffs. All else being equal, imports in the national income and product accounts can mechanically reduce GDP.
In a note to clients, the Wells Fargo strategists added that real final sales to private domestic purchasers -- a sum of personal consumption expenditures and fixed investments -- grew at almost 2% during the three-month period.
"In short, the drop in real GDP in [the first quarter] overstated the weakness of the economy in the opening stanza of the year," they wrote.
However, the analysts flagged that their projection for real GDP expansion of 1.8% in the second quarter "may overstate the strength of the economy at present."
Imports, in particular, are projected to have reversed course after having skyrocketed in the first quarter, plummeting by 25%, helping to give lift to GDP, they predicted.
Yet real consumer spending is tipped to rise by just 1.3% in the last quarter, while business and residential investments are seen sliding by 0.6% and almost 5%, respectively. Meanwhile, labor market indicators "also suggest the economy has decelerated a bit," the analysts said, citing a slowdown in private sector payrolls.
Murkiness around the economic outlook has largely contributed to the Fed’s decision to adopt a wait-and-see attitude to future interest rate reductions, even as Trump himself has campaigned heavily for the central bank to roll out quick cuts.
Minutes from the Fed’s latest meeting in June showed that just "a couple" of policymakers felt it appropriate to consider cutting borrowing costs as soon as this month. But "most participants" at the Fed meeting believed that a drawdown would be appropriate later in 2025, with price shocks from tariffs tipped to be "temporary or modest."
The rate-setting Federal Open Market Committee is expected to leave rates steady at 4.25% to 4.5% at the conclusion of its next two-day meeting on July 30, especially as the Fed’s preferred inflation reading remains above its target level, the Wells Fargo analysts said.
"[W]e do not think a critical mass of Fed policymakers are on board yet to approve a rate cut," the Wells Fargo analysts added.
But, should a potential tariff-driven increase in inflation in the coming months prove to be "a bump rather than a spike" and the labor market softens further, the FOMC is seen cutting rates by 25 basis points at its September meeting, following by two more similar reductions in October and December.