Insights 
VT 
The Atlanta Fed’s GDPNow model projects US real GDP growth for Q3 2025 at 3.5%. This marks an increase from the previous estimate of 2.2% on August 26.
Recent Data Adjustments
Recent data from the US Census Bureau and the Bureau of Economic Analysis prompted adjustments to the figures. The nowcast for third-quarter real personal consumption expenditures rose from 2.2% to 2.3%. Additionally, second-quarter real gross private domestic investment growth saw an increase from 4.4% to 6.1%.
There was a change in the net exports’ contribution to third-quarter real GDP growth. It shifted from a negative 0.36 percentage points to a positive 0.59 percentage points. The next update from GDPNow is scheduled for Tuesday, September 2.
We are seeing a significant revision in third-quarter growth expectations, with the forecast now at a strong 3.5%. This shift is fueled by better-than-expected consumer spending and a sharp improvement in the net export picture. The primary concern is that such robust growth could keep inflation stubbornly above the Fed’s target, much like the sticky CPI reading of 3.1% we saw reported for July.
This unexpectedly strong data makes bets on a more aggressive Federal Reserve policy look attractive. We should consider positioning for higher short-term rates, as the market may not have fully priced in the chance of the Fed holding rates firm through early 2026. This could involve looking at options on SOFR futures that would profit if rate cut expectations are pushed further out.
Market Implications
We might see a return to the dynamic of 2023, where strong economic news acted as a headwind for equities. The prospect of higher borrowing costs for longer could pressure stock valuations, especially in interest-rate-sensitive sectors. Consequently, positioning for an increase in market volatility through VIX options seems prudent as investors digest this new information ahead of the September Fed meeting.
For the bond market, this points toward higher yields across the curve, particularly on the shorter end. We can expect Treasury prices to face downward pressure in the coming weeks. Protective put options on long-duration Treasury ETFs could be an effective way to hedge against or speculate on this move.
A hawkish shift from the Fed relative to other central banks would likely strengthen the US dollar. The Dollar Index (DXY) has already been firm, hovering around 105.5 this month. This new data could provide the catalyst for a move higher, making long-dollar positions against currencies with more dovish central banks appealing.
