The Atlanta Fed GDPNow model has updated its estimate for third-quarter GDP growth in 2025 to 3.4% as of September 16, up from 3.1% on September 10. This change follows new data released by the US Census Bureau, US Bureau of Labor Statistics, and Treasury’s Bureau of the Fiscal Service.
The growth estimates for third-quarter real personal consumption expenditures have risen from 2.3% to 2.7%. Similarly, real gross private domestic investment growth has increased from 6.2% to 6.9%. However, the contribution of net exports to third-quarter real GDP growth has decreased from 0.23 percentage points to 0.08 percentage points.
Upcoming GDPNow Update
The next update from the GDPNow model is scheduled for Wednesday, September 17. More information on the release schedule can be found under the “Release Dates” section.
The third-quarter growth estimate has been revised up to 3.4%, indicating the economy is running hotter than we previously thought. This resilience is being driven by strong consumer spending and business investment. As a result, we must anticipate that the Federal Reserve will see little reason to lower interest rates in the near future.
This outlook suggests positioning for a “higher for longer” interest rate environment. We should look at options and futures that benefit from stable or rising rates, such as puts on Treasury bond ETFs. Looking back at the hawkish pivot in late 2023, strong economic data similarly delayed expectations for rate cuts, creating significant moves in fixed-income markets.
Implications of Economic Indicators
With the latest August Consumer Price Index data showing inflation holding firm at 3.6%, the case for a hawkish Fed is even stronger. The robust growth, especially in consumption, also points to continued strength in the S&P 500. We could use bull call spreads on major indices to capture this potential upside while managing risk.
The recent August jobs report, which added a solid 210,000 payrolls, supports the narrative of a strong consumer who is still spending. This makes options on consumer discretionary and industrial sector ETFs particularly interesting. However, with increased policy uncertainty, buying VIX call options could serve as an effective hedge against any surprises from the central bank.
Finally, a stronger US economy combined with a firm Federal Reserve typically leads to a stronger US dollar. This divergence from other central banks, some of which have already begun easing, presents opportunities in currency derivatives. We are looking at strategies that favor the dollar against currencies with more dovish monetary policies.
