The world’s largest economy grew at an annual pace of 2.4% in the three months to June, up from 2% in the previous quarter.
This was significantly better than projected, thanks to an increase in company investment.
Consumer expenditure climbed at a 1.6% annual rate, slowing following a 1.6% growth at the start of the year.
Analysts have been warning of a potential downturn for months as the Federal Reserve of the United States hikes interest rates dramatically to try to stabilize prices, which skyrocketed last year.
However, despite rising borrowing costs, firms and families have continued to spend, defying forecasts’ expectations.
While this may help the US economy escape a recession, other analysts fear that it may make it more difficult to totally eliminate inflationary pressures, perhaps leading to even higher interest rates in the months ahead.
“While this growth is a positive indicator of a strengthening economy, it will also exacerbate the inflationary pressures that the Fed is concerned about,” said Richard Flynn, managing director of Charles Schwab UK.
“We can expect further rate increases in the coming months as long as the labor market remains tight and inflation remains above the central bank’s 2% target.”
In the United States, inflation, or the rate at which prices grow, was 3% in June, down from more than 9% the previous year.
The drop came on the heels of a drop in global food and energy prices as markets reacted to the shock of Russia’s invasion of Ukraine last year.
This week, Federal Reserve Chairman Jerome Powell stated that the economy would likely have to slow further before policymakers could be certain that the problem had been resolved.
He highlighted that the US unemployment rate has remained steady since the Fed began its rate-hiking campaign, at 3.6%.
Wages are also rising, which is helping to keep consumer spending stable.
After adjusted for inflation, average hourly pay was 1.2% higher in June than a year ago, exceeding price rises for the first time since 2021.
“What our eyes tell us is that policy has not been restrictive for long enough to have the full desired effects,” Powell said at a news conference on Wednesday, after the bank announced another rate hike, this time to the highest level in 22 years.
The bank’s benchmark rate now has a target range of 5.25%-5.5%, up from near zero in March 2022.
The European Central Bank raised interest rates by a quarter percentage point on Thursday, boosting its key rate to 3.75%, while warning that inflation was “expected to remain too high for too long.”
In the United States, Mr Powell was evasive on whether the Fed will raise interest rates further.
Casey Stanley, president of the Indiana-based software firm Boyce Systems, expressed hope that borrowing prices were reaching their peak.
He said that the Fed’s actions had caused his company’s monthly interest payments to increase by more than 50% in the last two years.
“That has a real impact on our bottom line and our ability to make investments in the near term,” he said. “I believe it does more than that; it makes us more cautious.”
