The Atlanta Fed’s GDPNow growth estimate for Q3 increased to 2.5% from 2.1% as of August 1. These early quarter estimates may show increased volatility, but the Atlanta Fed is known for accurately estimating official data.
The GDPNow model forecast for real GDP growth, on a seasonally adjusted annual rate, stood at 2.5% for the third quarter by August 5. This marks a rise from the initial 2.1% estimate on August 1. Adjustments based on new data from the US Bureau of Economic Analysis, US Census Bureau, and Institute for Supply Management led to increases in real personal consumption expenditures and real gross private domestic investment growth, moving from 1.6% and 6.3% to 2.0% and 6.9%, respectively. These gains outweighed a minor decrease in the net exports’ contribution to GDP growth, which shifted from -0.30 percentage points to -0.36 percentage points.
Next GDPNow Update
The following GDPNow update is scheduled for Thursday, August 7.
The upward revision in the Atlanta Fed’s GDPNow estimate to 2.5% signals that economic activity might be stronger than many anticipated. This challenges the prevailing view of a slowing economy for the second half of the year. We should now position for the possibility that growth forecasts will continue to be revised higher as more data comes in.
This new growth figure is particularly significant when viewed alongside the most recent Consumer Price Index report for July 2025, which showed inflation at 3.4%. This combination of accelerating growth and persistent inflation raises the odds that the Federal Reserve will delay any planned interest rate cuts. Consequently, derivative bets on higher-for-longer interest rates, such as put options on long-duration bond ETFs like TLT, become more attractive.
The report highlights that it is still early in the quarter, meaning these estimates can swing significantly. With the next GDPNow update on August 7 and the monthly employment report also on the horizon, we should expect increased market volatility. This environment makes buying VIX call options or index straddles a viable strategy to profit from sharp price movements in either direction.
Market Repricing Implications
Until recently, market consensus was pricing in a quarter-point rate cut from the Federal Reserve by December 2025. This stronger economic data directly threatens that expectation, potentially forcing a significant market repricing. We saw a similar dynamic play out through 2023, when unexpectedly resilient economic data repeatedly pushed back expectations of a Fed pivot.
For equity traders, this suggests a potential rotation into cyclical sectors that benefit from economic expansion, such as industrials and materials. One could consider buying call options on sector ETFs that track these industries. Conversely, rate-sensitive growth stocks, particularly in the technology sector, may underperform if bond yields continue to rise in response to this data.
