The Atlanta Fed has announced its first growth estimate for the third-quarter GDP at 2.3%. This comes after the second-quarter GDP was reported at 3.0%, which was slightly higher than the Atlanta Fed’s earlier estimate of 2.9%. Their model, which is known for its accuracy, initially predicted that market economists would forecast a growth of 2.4%. Early estimates can vary quite a bit, but these fluctuations should decrease as more data becomes available.

Third Quarter Growth Estimate

As of July 31, 2025, the initial estimate for real GDP growth in the third quarter (seasonally adjusted annual rate) is 2.3%. This follows the announcement from the US Bureau of Economic Analysis, which reported a 3.0% growth for the second quarter, slightly above what the Atlanta Fed expected. The GDPNow estimate will be updated again, with the next update set for August 1. For more release details, check the “Release Dates” section. We just experienced a solid 3.0% GDP growth for the second quarter, surpassing most forecasts. However, the Atlanta Fed’s model is now indicating a slower 2.3% for the third quarter. This initial estimate suggests that the economy may be losing some momentum as we move into the second half of the year.

Market Implications

Given the early volatility in this forecast, we can expect an increase in implied volatility. Traders might want to consider buying options, such as puts on the SPX, to protect against a potential market drop if upcoming data confirms this slowdown. We remember the VIX spiked above 20 during the regional banking concerns in spring 2024 when mixed economic signals first appeared; a similar reaction could happen again. This GDP outlook arrives just as the July CPI report showed core inflation finally dropping to 3.1%, which is a bit lower than expected. The job market remains strong with a 3.6% unemployment rate, but the latest report from early July indicated that wage growth is slowing for the second month in a row. The Federal Reserve is monitoring this closely, and any sign of a significant slowdown could adjust their previously hawkish stance. If this growth concern develops, we are looking at defensive sectors like utilities (XLU) and healthcare (XLV) to potentially outperform. On the other hand, it might be wise to use derivatives to hedge or take bearish positions on cyclical stocks in the industrial and consumer discretionary sectors, as they are most sensitive to declines in spending and investment. The market is already beginning to factor in a reduced likelihood of another rate hike this year. Traders in SOFR futures are starting to position for the idea that the Fed may have already reached its peak rate. We witnessed a similar shift in late 2018 when the Fed eased its tightening cycle amid growing concerns about economic growth, which led to a significant bond rally. Create your live VT Markets account and start trading now.

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