GDP revised up for Q2 to six.6%: What which means for rates of interest
The Bureau of Economic Analysis revised its GDP up slightly for the second quarter, but it fell short of expectations. (iStock)
The second estimate of gross domestic product (GDP) for the second quarter of 2021 fell short of expectations, but rose to 6.6%, according to data released by the Bureau of Economic Analysis (BEA) on Thursday. This is a slight increase from the 6.5% advanced estimate and 6.3% in the first quarter.
The modest increase was due to upward revisions in fixed investment and non-residential exports, but was partially offset by downward revisions in private inventory investment, residential fixed asset investment, and government and local spending. Imports that are deducted from the GDP calculation have also been revised downwards.
“The increase in GDP in the second quarter reflects the continued economic recovery, reopening of facilities and the government’s continued response to the COVID-19 pandemic,” the BEA said in its report. “In the second quarter, government aid in the form of corporate loans and grants to state and local governments increased, while household benefits, such as direct economic impact payments, declined.”
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GDP does not meet expectations
Economists fell well below expectations in the second quarter and began revising their growth forecasts for 2021 downwards. Mortgage giant Fannie Mae cut its expectations from 7% economic growth for full year 2021 to 6.3%, according to the latest report from the Economic and Strategic Research Group.
The Dow Jones originally forecast an 8.4% increase for the second quarter, but after the advanced estimate, it lowered its forecast for the second estimate to 6.7%. But here, too, the GDP estimate was below this forecast.
Unemployment claims are also falling below expectations, although they are near the lows of the pandemic era as the labor market continues to recover. The number of first-time job registrations was 353,000 for the week ending August 21, 2021, which is a slight increase from 349,000 the week before, according to the Ministry of Labor. That is slightly above the Dow Jones estimate of 350,000.
The weaker than expected economic growth could induce the US Federal Reserve to continue on its current monetary policy course in order to avoid interest rate adjustments. This will keep mortgage rates low and give homeowners more time to refinance their home loans or give home buyers additional purchasing power when house prices rise. Currently, the latest data from Freddie Mac shows that mortgage rates remain below the 3% mark. Visit Credible to compare multiple lenders at the same time and find the mortgage rate that works best for you.
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The future of interest rates is uncertain
The members of the Federal Reserve have increased the likelihood of raising the federal funds rate as early as 2022. This will cause interest rates to rise on products like personal loans, student loans, and home loans.
Although GDP and the labor market did not live up to expectations, inflation was strong, which worries some Fed officials. At the Fed’s annual Jackson Hole Conference, St. Louis Federal Reserve President James Bullard said the Federal Reserve must begin to moderate inflation. According to the consumer price index (CPI), the current inflation rate over the past 12 months is 5.4%.
“We have a new framework that we said we would keep inflation above target for some time, but not that much above target,” said Bullard. “For this reason I think we want to start with the taper. We will finish the taper by the end of the first quarter of next year.
“And then we can assess the situation and, at that point in time, see if inflation has eased and if it does we will be in great shape,” he said. “If it hasn’t let up, we need to be more aggressive to contain inflation.”
While the Federal Reserve may try to hike rates soon, they are currently at all-time lows. Consumers have taken advantage of these low interest rates to refinance their mortgage, take out a personal loan, or even refinance their student loan. If you want to take advantage of this and get a lower APR, refinance your student loan in lower monthly installments. Visit Credible to get prequalified without sacrificing your creditworthiness.
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