US economy grew more than expected as Trump’s tariffs took hold

The U.S. economy has largely defied fears of a tariff-induced downturn.

​The U.S. economy has largely defied fears of a tariff-induced downturn.   

A fresh report on United States gross domestic product, or GDP, is set to provide a key measure of the nation’s economic health as President Donald Trump’s tariffs took hold over recent months.

So far, the U.S. economy has largely defied fears of a tariff-induced downturn.

The unemployment rate stands near a historically low level and job growth remains robust, though it has slowed from previous highs. Inflation has climbed over the last two months but it remains below where it stood when Trump took office.

Economists expect GDP to have increased at a 2.3% annualized rate over three months ending in June, which would mark a rebound from a contraction of -0.5% over the previous quarter.

The anticipated reading would amount to modest but sturdy economic growth, suggesting the economy has continued to avert a significant cooldown from tariffs.

To some degree, however, Trump’s levies have blurred the findings of the GDP.

The government’s GDP formula subtracts imports in an effort to exclude foreign production from the calculation of total goods and services. Changes in the reading on this account do not reveal either underlying economic weakness or strength.

The measure of GDP fell over the first three months of the year, largely due to a surge of imports as firms stockpiled inventory to avoid far-reaching tariffs. Conversely, a potential drop-off in imports over the second quarter could inflate the second quarter GDP figure.

In the months following Trump’s “Liberation Day” tariffs, in April, consumer sentiment declined to its lowest level in years, raising concern about a possible pullback in consumer spending, which accounts for about two-thirds of economic activity.

Consumer sentiment has ticked up for two consecutive months, however, as Trump has rolled back some of his steepest tariffs. Consumer spending has proven fairly resilient.

The fresh GDP data is set to arrive hours before the Federal Reserve announces its latest decision on the level of interest rates.

Investors peg the chances of interest rates holding steady at an overwhelming 97%, according to the CME FedWatch Tool, a measure of market sentiment.

In theory, sturdy economic growth eases pressure on the Fed to lower interest rates, since consumers and businesses appear undeterred by high borrowing costs. If growth begins to slow, the Fed could seek to lower interest rates as a means of boosting economic performance.

The Fed has adopted a wait-and-see approach as it observes the effects of Trump’s tariffs.

“Despite elevated uncertainty, the economy is in a solid position,” Fed Chair Jerome Powell said at a press conference in Washington, D.C., last month.