US GDP Revised Higher, Inflation Cools; ADP Data Eases Rate-Hike Fears, Boosts Risk Appetite

The U.S. Bureau of Economic Analysis on Wednesday revised second-quarter gross domestic product growth to an annualized 2.2%, up sharply from the preliminary reading of 1.5% and above the consensus forecast of 1.5%. The upward revision, driven by consumer spending, business investment in artificial intelligence infrastructure, and exports, signaled a more resilient economy than many had anticipated.

The BEA also revised first-quarter growth to 2.5%, according to RTHK, up 0.4 percentage points from the prior estimate.

In a separate release, the BEA reported that the Personal Consumption Expenditures price index, the Federal Reserve’s preferred inflation gauge, rose 3.4% year-over-year in August, below the 3.7% expected by economists polled by Reuters. Core PCE, which excludes volatile food and energy prices, increased 3.0% annually, also below forecasts for 3.3%. On a monthly basis, headline PCE rose 0.3% (versus 0.4% expected) and core PCE gained 0.2% (versus 0.3% expected).

The data reinforced the view that inflation is moderating, even as it remains above the Fed’s 2% target.

Adding to the positive economic picture, payroll firm ADP reported that private employers added 90,000 jobs in September, according to The Guardian, beating expectations and accelerating from August’s downwardly revised gain of 36,000.

**Market Reaction**

Gold prices surged to session highs following the releases. Spot gold last traded at $4,213.11 per ounce, up 0.74% on the day, Kitco reported.

Stock markets finished mixed. The S&P 500 fell 0.3% to 7,652, the Dow Jones Industrial Average dropped 0.9% to 50,906, and the Nasdaq Composite rose 0.2% to 26,861, according to RTHK. The Guardian reported similar moves: the S&P ended down 0.25%, the Dow down 0.86%, and the Nasdaq up 0.24%.

The yield on the 10-year Treasury note held steady at 5.246%, a day after hitting its highest since June 2007, The Guardian noted. Long-term bond yields remained elevated, with CFRA Research’s Arun Sundaram telling RTHK that higher yields “likely reflect stronger economic growth expectations, partly driven by the AI boom, which is fuelling record capital spending.”

The dollar index was volatile. One summary from Nasdaq reported the dollar rose 0.09%, while another showed it slipped 0.17%, reflecting shifting rate expectations.

**Rate-Hike Odds Decline**

Traders now see roughly a 35% chance of an October rate hike, down from about 45% prior, according to data compiled by LSEG reported by The Guardian. The Fed raised rates earlier this month for the first time since 2023.

Chris Zaccarelli, Chief Investment Officer at Northlight Asset Management, told Kitco that the mixed data showed the Fed “was probably correct in raising rates this month, but if the inflation data improves they might be able to skip a meeting or at least raise rates less than the 3 times in a row that many were worried about.”

Bill Adams, Chief U.S. Economist at Fifth Third Commercial Bank, said the August PCE report was “a glass half empty,” with inflation still not close to target. He noted that “consumers are under financial stress as prices rise faster than incomes,” but added that other data point to decent job growth, keeping the Fed focused on controlling inflation.

Sam Stovall, Chief Investment Strategist at CFRA Research, told The Guardian: “The market had been tracing out a bullish formation, meaning the price pattern suggested that any positive catalyst could trigger a move higher and that’s exactly what happened.”

**Broader Context**

The GDP revision was supported by strong consumer spending and a boom in AI-related capital investment. Leading contributors to growth included real estate, information, durable goods manufacturing, and finance and insurance, the BEA said. Decreases came from transportation, retail trade, and non-durable goods manufacturing.

Oil prices advanced on Wednesday amid a lack of progress in U.S.-Iran negotiations over the Strait of Hormuz, RTHK and The Guardian reported. European markets closed lower after data showed surging inflation in France, Germany, and Italy, raising stagflation concerns.

The data also carries political weight ahead of the November midterm elections. RTHK noted the revised GDP growth is a boost to President Donald Trump, while The Guardian reported that inflation has emerged as the top issue for voters and that Trump receives poor marks for his handling of the economy.

The Labor Department’s monthly jobs report for September is due Friday, with economists expecting a gain of 84,000, down from 162,000 in August, according to The Guardian.