U.S. Economy in the 3rd Quarter Grew Faster Than Expected, Lowering Prospects of a Hard Landing

US Economy Defies Recession Fears: Fastest Growth in Two Years Sparks Fed Rate Speculations

According to a report in Reuters News, “The U.S. economy grew at its fastest pace in nearly two years in the third quarter as higher wages from a tight labor market helped to power consumer spending, again defying dire warnings of a recession that have lingered since 2022.

Gross domestic product increased at a 4.9% annualized rate last quarter, the fastest since the fourth quarter of 2021, the Commerce Department’s Bureau of Economic Analysis said in its advance estimate of third-quarter GDP growth. Economists polled by Reuters had forecast GDP rising at a 4.3% rate.”

While many economists believe that the current pace of growth in the United States is unsustainable, it clearly illustrates the resilience of the US economy in light of the aggressive monetary policy of the Federal Reserve as they have raised its terminal benchmark rate from approximately ¼% in March 2022 to its current level which is between 5 ¼% and 5 ½%.

Two questions emerge from this report. First, whether the Federal Reserve will raise rates one last time this year at the December FOMC meeting. Secondly how long the Fed will keep interest rates elevated and will it deviate from their current projections of rate cuts which have declined from earlier projections?

In June, the Federal Reserve was projecting that once a pivot to rate cuts began, rates would quickly be reduced by a full percent with a series of four ¼% cuts in 2024. The Fed’s projections changed in September, now forecasting only two ¼% cuts in 2024.

According to many analysts, today’s GDP report should not have any impact on the short-term monetary policy of the Federal Reserve. According to the CME’s FedWatch tool, the financial markets expect interest rates to remain unchanged at the November FOMC meeting.

Gold and US Dollar Reactions

As of 4:40 PM EDT, gold futures basis the most active December contract is up $0.50 and fixed at $1995.4. Gold futures did trade to a high of $2003.70 and a low of $1981.60. The dollar had minimal influence, with fractional gains of 0.07% taking the dollar index to its current level of 106.42.

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Wishing you as always good trading,

Gary S. Wagner