OCTOBER 30, 2023 – Q3 GDP GROWS AT ITS FASTEST PACE IN ALMOST 2 YEARS
The US economy grew at a strong 4.9 percent in the third quarter, largely driven by consumer spending. This was the fastest pace since late 2021 and double the rate of the second quarter. The data will not change the Fed’s plans for the upcoming meeting on October 31 – November 1.
As good as the numbers are, they are unsustainable. Consumers saved less this summer, and earnings, adjusted for inflation, fell. Consumer spending accounts for most of the US economic output. Business investment is down, there is unrest in the Middle East and Europe, and long-term interest rates are rising. Despite the negative news, economists are predicting a slowdown, rather than a recession.
The strong GDP data is making an argument for leaving rates higher longer and has raised the possibility of one last rate hike in December. Fed Chair Powell said further rate hikes will be dependent on strong activity data, and they may not wait for inflation to move up before acting. Powell stated on October 19 the Fed will not raise rates at this week’s meeting.