Robust Consumer Spending Stands Against Fed's Half-Point Rate Cut

In July, U.S. consumer spending grew significantly, indicating a stable economy and diminishing the likelihood of a half-point interest rate cut by the Federal Reserve next month. Although the unemployment rate rose to a three-year high, spending on goods and services increased, supported by decent wage growth and lowered saving rates.

In July, U.S. consumer spending experienced a solid increase, suggesting that the economy remains on stable ground as the third quarter progresses. This development challenges the notion of a half-percentage-point interest rate cut by the Federal Reserve next month. The Commerce Department's report, released Friday, also indicated a modest rise in prices, keeping inflation in check.

Despite a rise in the unemployment rate to a near three-year high of 4.3% in July, which had spurred recession fears, consumer expenditure helped to sustain economic momentum. Financial markets and some economists had expected a 50-basis-points rate reduction during the anticipated policy easing by the U.S. central bank in September. Fed Chair Jerome Powell recently hinted that a rate cut would soon occur, reflecting concerns about the labor market.

'There is nothing here to push the Fed to a half-point cut,' said Conrad DeQuadros, senior economic advisor at Brean Capital. 'This is not the kind of spending growth associated with recession.' Consumer spending, making up over two-thirds of U.S. economic activity, increased by 0.5% last month, aligning with economists' expectations. After adjusting for inflation, spending retained its momentum from the second quarter, contributing significantly to GDP growth.