Q2 GDP on Track for 2.4% Growth, But Second-Half Headwinds Building — Evening Brief – 06.18.25 

While concerns about the US economy persist, incoming data suggests any near-term weakness won’t appear in the second-quarter GDP report due July 30. Updated forecasts continue to point to a 2.4% expansion in Q2, signaling a firm rebound after the first-quarter contraction. The resilience in growth this late in the quarter suggests the risk of downward revisions is fading, barring an unexpected June collapse. 

Still, risks are building for the second half as trade tensions, weakening consumer data, and rising geopolitical uncertainty weigh on the outlook. May retail sales fell 0.9%, the largest monthly drop in four months, raising fresh concerns over consumer resilience, while housing starts and building permits fell more than expected. 

“Tariff announcements have had a clear impact on the timing of large-ticket purchases, notably autos, but there are few signs yet that tariffs are leading to a general pullback in consumer spending,” said Michael Pearce, deputy chief economist at Oxford Economics. “We expect a more marked slowdown to take hold in the second half of the year, as tariffs begin to weigh on real disposable incomes.” 

Geopolitical risks are also intensifying as the Israel-Iran conflict threatens to draw in US forces, with reports indicating the Pentagon is preparing for potential involvement. Any prolonged disruption could keep oil prices elevated, driving up headline inflation and complicating the Fed’s policy path. 

The Fed held rates steady at today’s meeting, opting for caution amid elevated uncertainty. “The Fed is paralyzed by Trump’s uncertainty,” wrote Dario Perkins of TS Lombard. “Central bankers are always a conservative bunch, and with risks to both sides of their [inflation and unemployment] mandate, the bias is to wait and see if the next few months will resolve their dilemma.”