The GDP report's case for rate cuts

The latest GDP report showed a 3% annual growth rate, a rebound from the previous quarter. However, this headline figure was largely driven by a decrease in imports following a surge caused by tariff anticipation. Beneath the surface, underlying domestic demand showed significant softness, growing at its slowest pace in over two years. Key interest-rate sensitive sectors, specifically residential and commercial construction, experienced contractions. These sectors have openly cited high interest rates as a major headwind to their performance. Meanwhile, inflation, as measured by the PCE Price Index, was close to the Federal Reserve's 2% target. This combination of weak underlying demand, struggling interest-sensitive sectors, and contained inflation presents a strong argument for the Federal Reserve to consider interest rate cuts. The argument for delaying cuts relies on future inflation predictions, particularly concerning the impact of tariffs. Ultimately, the weakest underlying trends, exacerbated by elevated rates, provide the most compelling case for a policy adjustment.