The Atlanta Fed’s GDP growth estimate for the second quarter increased to 2.9% from 2.4% as of July 25. This marks the final estimate for Q2, with the US GDP figures to be released at 8:30 AM ET the following day.
The GDPNow model indicated a real GDP growth rate of 2.9% for Q2 on July 29. A reported decline in gross private domestic investment growth from -11.7% to -12.7% was offset by an increase in the net exports’ contribution to GDP growth, moving from 3.31 percentage points to 4.04 percentage points.
Third Quarter Estimate
The forthcoming GDPNow update on July 31 will provide the initial estimate for the third quarter. Meanwhile, a Reuters survey involving 83 participants estimates the advanced GDP median at 2.4%, with predictions ranging from 0.8% to 4.5%.
We are noting the gap between the final Atlanta Fed GDPNow estimate of 2.9% and the market consensus of 2.4%. This discrepancy creates a clear opportunity for a volatility event around tomorrow’s 8:30 AM ET official data release. The wide 0.8% to 4.5% range in the Reuters survey further signals a lack of conviction in the market, which we can exploit.
If the official number prints closer to 2.9%, it suggests the economy is running hotter than previously thought, which has inflationary implications. With the latest core PCE inflation figures for June 2025 holding firm at 3.1%, a strong GDP report would likely push Treasury yields higher. We would anticipate the 10-year Treasury yield, currently at 4.15%, to test its recent highs around 4.30%.
To position for this, we are looking at buying short-dated VIX call options for the August expiration, as a sharp market reaction could see the VIX spike from its current low level of 14. Additionally, we are considering straddles on the SPDR S&P 500 ETF (SPY) to profit from a significant price move, regardless of the direction. The market’s reaction to an unexpected economic signal is often sharp and immediate.
Federal Reserve Rate Implications
Looking further ahead, a strong GDP print would challenge the market’s current pricing for a Federal Reserve rate cut at the September meeting. Current Fed funds futures imply a 65% probability of a 25-basis-point cut; a strong number could see those odds fall below 40% very quickly. This creates an opportunity to position for a more hawkish Fed over the next several weeks.
We saw a similar dynamic in late 2023 when resilient economic data consistently pushed back the timeline for expected rate cuts, causing volatility in both equity and bond markets. Therefore, we are considering longer-dated put options on interest-rate-sensitive instruments like the iShares 20+ Year Treasury Bond ETF (TLT). This provides a way to hedge or speculate on the “higher-for-longer” rate narrative regaining momentum.
Conversely, should the GDP number come in at or below the 2.4% consensus, we would expect a relief rally as rate-cut expectations solidify. In that case, our short-term volatility positions should be closed quickly to capture the initial move. The primary risk remains a GDP print that perfectly matches consensus, which could lead to a muted market reaction and a decay in the value of our options.
