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GDP bottom line: Unlikely to impact the Fed upcoming decisions

Consumers have been a driving force behind the American economy, leading to its most robust pace of growth since early 2021. In the third quarter, the economy expanded seasonally, and the inflation-adjusted annual rate was 4.9%. This growth rate exceeded the expectations of economists, who estimated GDP to grow at 4.7% for the same period, more than double the pace seen in the second quarter, which was at 2.1%.

Of course, markets are a forward-looking machine where it's expected the economy's resilience may face challenges soon. Factors like rising long-term interest rates, conflicts in Ukraine and the Middle East, and the potential for a partial U.S. government shutdown could test the strength of the economy.

The print was also lower than the Atlanta FED GDPNOW of 5.3 % and is unlikely to significantly impact the Federal Reserve's upcoming decisions.

GDP figures are backward-looking compared to more timely monthly data, such as inflation and employment numbers.

The consensus expectation is that the Fed will keep interest rates unchanged at their current 22-year high. This decision allows policymakers more time to assess the impact of their previous rate hikes and recent events, such as the sharp bond market sell-off.

However, the GDP data serve as a reminder of the underlying strength of the U.S. economy and support the expectation that interest rates will remain elevated for an extended period. This is particularly relevant for longer-dated 10- and 30-year Treasuries, which have experienced significant sell-offs in recent weeks and should remain particularly sensitive to future growth expectations.

Author

Stephen Innes

Stephen Innes

SPI Asset Management

With more than 25 years of experience, Stephen has a deep-seated knowledge of G10 and Asian currency markets as well as precious metal and oil markets.

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