The U.S. economy powered through the second quarter, growing more than expected even as inflation resumed its path back to the Federal Reserve ’ s 2% target.  

Inflation-adjusted gross domestic product grew at an annualized rate of 2.8% in the second quarter, according to an initial estimate the Bureau of Economic Analysis released Thursday. That was not only a significant rebound from the 1.4% pace logged in the first three months of the year, but it surpassed the 1.9% growth forecast by economists surveyed by FactSet.  

A robust economy is a good sign for the average consumer, and because it came in tandem with positive data on prices, it is in line with the soft landing of a healthy economy and cooling inflation that Federal Reserve officials are looking to achieve. Economists consider real GDP growth rates of between 2% and 3% to be healthy in developed economies.  

The central bank has been attempting to use higher interest rates to damp demand and rein in higher inflation. Although the latest data show consumer spending was up during the second quarter, price pressures eased modestly in recent months — leaving expectations that the Fed will cut rates as early as September largely unchanged.  

"The second quarter pace of disinflation has effectively negated the scare that was the first quarter, it now looks like we are back to the 2% glide path," writes Olu Sonola, Fitch Ratings ’ head of economic research. "This is a perfect report for the Fed — growth during the first half of the year is not too hot, inflation continues to cool and the elusive soft landing scenario looks within reach."

The central bank ’ s Federal Open Market Committee is set to meet next week, though there is little expectation that officials will cut rates at the July meeting. Odds of a September rate cut were at 88% after Thursday ’ s release.  

The second quarter ’ s growth in real GDP was primarily driven by consumer spending in both goods and services, as well as a buildup in inventories and an uptick in nonresidential fixed investments such as equipment, the bureau reported.  

In addition to the first estimate of real GDP growth, Thursday ’ s release also included a quarterly measure of the Fed ’ s preferred inflation gauge. The personal consumption expenditures price index increased 2.6% during the second quarter — the slowest pace since the first quarter of 2021. That is a marked slowdown from the 3.4% pace recorded in the first three months of the year.  

Core PCE inflation, which excludes food and energy prices, increased 2.9% during the second quarter. Again, that was a slowdown from the first quarter ’ s pace of 3.7%.

The bureau is scheduled to release the latest estimate of PCE inflation for just the month of June on Friday. Economists expect price growth was 2.4% last month, a slowdown from the 2.6% pace in May. June ’ s core PCE reading is expected to moderate as well.  

Consumer spending added about 1.57 percentage points to the second quarter ’ s overall surge in real GDP growth. Services spending grew 2.2% during the quarter, largely concentrated in healthcare, housing and utilities, and recreation services, the bureau said.

While spending on goods declined 2.3% in the first quarter, Americans ’ purchases in this area rebounded for an increase of 2.5% in the last three months, particularly in durable goods. The top spending categories included auto parts, recreational equipment, household furnishings, and gasoline.

Helping drive the higher spending was the fact that Americans ’ personal income in the second quarter increased by $237.6 billion, for a gain of about 1% from the first three months of the year. Inflation-adjusted disposable income increased by 1%, a slight slowdown from the 1.3% gain in the first quarter.

Yet even as incomes grew modestly, Americans put a smaller share of their money aside for the future. The personal saving rate, in which the bureau compares savings with disposable personal income, was 3.5% in the second quarter. That is a pullback from the 3.8% rate measured in the first quarter of 2024.

Real GDP growth also got a lift from a buildup of inventories that provided a 0.8 percentage-point boost to overall GDP — a significant shift after a pullback in the first quarter. Business investment spending on equipment was also strong, rising 11.6% during the quarter.

While the U.S. economic growth defied expectations, reaccelerating in the second quarter, economists believe that there will be weaker quarters ahead. "The economy has blemishes," writes Scott Hoyt, a senior director at Moody ’ s Analytics senior director, pointing out that while second-quarter growth was robust, it was nowhere as strong as in the second half of 2023.