The U.S. economy has shown robust growth in the second quarter of 2024, with a 3% increase, mainly driven by consumer spending and business investment. However, behind these positive numbers, the Federal Reserve’s monetary policy remains critical for future growth.
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In 2022 and 2023, the Federal Reserve raised interest rates 11 times, bringing the cost of borrowing to its highest level in 23 years. The measures were intended to curb inflation, which peaked at 9.1% in 2022. These measures helped reduce inflation to 2.9% in July 2024, getting closer to the 2% target set by the central bank.
The Commerce Department’s report also highlights the slowdown in core inflation, which excludes volatile food and energy prices. This core inflation grew at 2.7% in the second quarter, an improvement from the 3.2% recorded in the first quarter.
With inflation receding, Federal Reserve Chairman Jerome Powell has hinted that the institution might begin lowering interest rates in September. This would mark the start of a new phase of more flexible policies aimed at achieving a “soft landing” for the economy. This means reducing inflation without negatively affecting economic growth or the labor market.
However, the labor market has already shown signs of weakening, with a gradual rise in unemployment to 4.3% and a slowdown in hiring. Although these figures are historically low, they reflect a cooling labor market, which could influence the Federal Reserve’s future decisions.
The challenge for the Federal Reserve is to maintain the balance between reducing inflation and preserving economic growth. The coming months will be key in determining whether the economy can continue to grow at this sustained pace while interest rates begin to decline.
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