The Atlanta Fed GDPNow model has updated its forecast for third-quarter GDP growth in 2025 to 3.4% as of September 16, an increase from 3.1% on September 10. This adjustment is based on new information from the US Census Bureau, US Bureau of Labor Statistics, and Treasury’s Bureau of the Fiscal Service. The expected growth for third-quarter personal consumption spending has risen from 2.3% to 2.7%. Similarly, the growth for real gross private domestic investment has increased from 6.2% to 6.9%. However, the impact of net exports on third-quarter GDP growth has fallen from 0.23 percentage points to 0.08 percentage points.

Upcoming GDPNow Update

The next update from the GDPNow model will be on Wednesday, September 17. You can find more details on the release schedule in the “Release Dates” section. The revised growth estimate of 3.4% shows that the economy is performing better than expected. This strength is driven by solid consumer spending and business investment. As a result, the Federal Reserve is less likely to lower interest rates anytime soon. This outlook suggests we should prepare for interest rates to remain “higher for longer.” We should consider options and futures that thrive in steady or rising rate environments, such as puts on Treasury bond ETFs. After the hawkish shift in late 2023, strong economic data also pushed back expectations for rate cuts, causing significant changes in fixed-income markets.

Implications of Economic Indicators

The recent August Consumer Price Index shows inflation steady at 3.6%, reinforcing a hawkish stance from the Federal Reserve. The strong growth in consumption also indicates continued strength in the S&P 500. We might use bull call spreads on major indices to take advantage of this potential upside while managing risk. The August jobs report added a solid 210,000 jobs, further supporting the idea of a strong consumer who continues to spend. This makes options on consumer discretionary and industrial sector ETFs especially appealing. However, with policy uncertainty rising, buying VIX call options could serve as a good hedge against unexpected moves from the central bank. Lastly, a stronger US economy along with a firm Federal Reserve usually leads to a stronger US dollar. This sets the US apart from other central banks, some of which have started easing. It creates opportunities in currency derivatives, and we’re looking at strategies that favor the dollar against currencies with softer monetary policies. Create your live VT Markets account and start trading now.

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