The US Economy Likely Expanded at the Quickest Pace in Nearly Two Years: Bloomberg
The world’s largest economy is expected to have grown at its fastest pace in almost two years during the third quarter, driven by strong consumer spending in the US. This presents a challenge for Federal Reserve officials who are currently debating whether further tightening of monetary policy is necessary. According to a Bloomberg survey of economists, gross domestic product (GDP) is projected to have advanced at an annualized pace of 4.3% in July-September. The US economy’s robust growth stands in contrast to the stagnation in Europe and the struggles faced by Asia, particularly China.
The primary engine of the US economy, personal consumption, is expected to have grown at a rate of 4%, illustrating resilient demand. This poses a test for Fed officials who have been raising interest rates for the past two years. Despite inflation being below its peak levels, price pressures are still running at almost twice their target rate.
The GDP report for the third quarter is unlikely to push the Fed towards raising rates in November, but continued spending momentum in the fourth quarter could increase the likelihood of further tightening in early 2024. Fed Chair Jerome Powell has stated that additional evidence of above-trend growth or labor market tightness could risk progress on inflation and warrant further tightening of monetary policy.
Upcoming data on income and spending in September will provide further insight into household demand and inflation heading into the fourth quarter. The forecast for the core personal consumption expenditures price index, one of the Fed’s preferred measures, suggests a 3.7% increase. This would be the smallest annual gain since May 2021, indicating modest progress on inflation.
Other economic events to watch include the Bank of Canada rate decision, the European Central Bank’s meeting, and policy decisions in Israel, Chile, Russia, and Turkey. In Asia, China’s National People’s Congress, Japan’s elections, and South Korea’s trade data will be closely monitored. In Europe, labor market data from the UK, purchasing managers indexes, and Spain’s GDP report are key releases. Additionally, central bank decisions in Hungary, Turkey, and Russia are expected. Finally, Latin America will see inflation and GDP data from Mexico and Argentina, and a rate decision in Chile.
Overall, the robust growth of the US economy, fueled by strong consumer spending, presents a challenge for Federal Reserve officials as they consider the need for further monetary tightening. While further rate hikes are not expected in November, continued spending momentum could lead to additional tightening in early 2024.
