The Atlanta Fed’s GDPNow model predicts a real GDP growth of 3.5% for the US in Q3 2025. This is a significant rise from the previous 2.2% estimate on August 26.

Recent Data Adjustments

Recent reports from the US Census Bureau and the Bureau of Economic Analysis have led to these updated figures. The nowcast for third-quarter real personal consumption expenditures increased from 2.2% to 2.3%. Furthermore, the growth rate for second-quarter real gross private domestic investment jumped from 4.4% to 6.1%. The contribution of net exports to third-quarter real GDP growth changed as well, moving from a negative 0.36 percentage points to a positive 0.59 percentage points. The next GDPNow update will be available on Tuesday, September 2. We are witnessing a notable adjustment in third-quarter growth expectations, now set at a solid 3.5%. This change is driven by stronger-than-anticipated consumer spending and a significant improvement in net exports. However, this strong growth may keep inflation stubbornly above the Fed’s target, similar to the 3.1% CPI reading reported for July. The unexpected strength of this data makes it tempting to bet on a more aggressive Federal Reserve policy. It might be wise to prepare for higher short-term rates, as the market might not fully reflect the possibility of the Fed maintaining rates through early 2026. This could mean looking at options on SOFR futures to benefit if rate cut expectations are delayed.

Market Implications

We could see a repeat of the 2023 dynamic, where strong economic news was a headwind for equities. The chance of higher borrowing costs lasting longer may hurt stock valuations, especially in interest-rate-sensitive sectors. Therefore, it seems sensible to position for increased market volatility using VIX options as investors adjust to this new information ahead of the September Fed meeting. Regarding the bond market, we should expect higher yields, particularly on the shorter end of the curve. Treasury prices might face downward pressure in the weeks ahead. Using protective put options on long-duration Treasury ETFs could be a good strategy to hedge against or speculate on this trend. If the Fed takes a hawkish stance compared to other central banks, the US dollar is likely to strengthen. The Dollar Index (DXY) has already been firm, around 105.5 this month. This new data could push it even higher, making long-dollar positions against currencies with more dovish central banks appealing. Create your live VT Markets account and start trading now.

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