Economic Growth Picks Up, But Inflation Still Pressures The Fed: This Week In Markets

The U.S. economy closed the second quarter with a final GDP growth rate of 3.8% ? its strongest performance since the third quarter of 2023 and above the long-term average pace.

That's a sharp rebound from the 0.5% contraction in the first quarter, when fears over looming tariffs rattled businesses. Still, the acceleration in growth stands somewhat at odds with the softer labor market data seen over the summer.

Speaking in Rhode Island, Federal Reserve Chair Jerome Powell said that signs of labor market weakness had pushed policymakers to shift their balance of risks in a way that justified a rate cut last week.

On inflation, Powell noted that the impact of tariffs has so far remained at the lower end of expectations and could prove temporary. He emphasized that there is no preset path for future rate decisions, underscoring the Fed's challenge of balancing persistent inflation risks against a cooling job market.

Powell also described equity valuations as "fairly highly valued." His remarks sparked a modest pullback on Wall Street, with major indexes easing slightly over the course of the week.

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Fresh data on Thursday and Friday revealed jobless claims far under expectations, suggesting that layoffs remain limited and the labor market is holding firm despite Fed worries.

Inflation, meanwhile, ticked higher in August, with the Personal Consumption Expenditures index rising from 2.6% to 2.7% year-over-year and 0.3% month-over-month. Core PCE, the Fed's preferred measure, increased 0.2% on the month and held at 2.9% annually.

The University of Michigan's latest consumer sentiment survey painted a weaker picture, showing confidence falling for a second straight month to its lowest since May.

"Consumers continue to express frustration over the persistence of high prices, with 44% spontaneously mentioning that high prices are eroding their personal finances, the highest reading in a year," said Joanne Hsu, director at the University of Michigan's Surveys of Consumers.

In the commodities market, gold and silver extended their powerful rallies. Gold ? as tracked by SPDR Gold Shares (GLD) ? hit a fresh record of $3,800 per ounce and is now up 43% year-to-date, its strongest run since 1979.

Silver ? tracked by the iShares Silver Trust (SLV) ? gained 15% in September alone, climbing above $46 per ounce ? the highest level since May 2011.

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