Despite stronger-than-anticipated economic growth in the United States in the third quarter, traders have increased their bets on Thursday, and the Fed will maintain its policy this year, with interest rates falling by mid-2024.
On Thursday (26 October), United States Department of Commerce data show that the United States quarterly GDP rate for the third quarter was 4.9 per cent, the fastest increase since the fourth quarter of 2021. While this strong economic growth is unlikely to continue, it demonstrates the resilience of the economy.
Futures settled at the December policy rate of the Federal Reserve show that traders now expect the Fed to be able to raise the base short-term interest rate by between 0.25 percentage points and 5.5 per cent at the last meeting of this year by about 25-5.75 per cent. Prior to the issuance of the report, approximately 30 per cent of the potential had been taken into account in the contract.
The economy ' s main engine of growth, personal consumption expenditure, grew by 4 per cent, the highest level since 2021. At the same time, core inflation indicators have slowed to their lowest levels since 2020. With high prices and high borrowing costs rising rapidly, the growth of the United States economy has remained stable, surpassing the expectations of forecasters and easing recessionary concerns. The main driving force of this resilience is the continued strong job market, which continues to drive the growth of household demand.
Despite persistent concerns about the slowdown, GDP data highlight the resilience of United States consumers. However, many economists argue that this is a high level of economic growth before the credit crunch triggered by the Fed's interest rate hike and the recent rise in bond yields affect business development and consumer spending.
In a report, Greg Daco, Chief Economist for Ernst and Young, wrote: “In view of the tightening of credit conditions, the resumption of student loan payments, the uncertainty of the delayed impact of monetary policy and the fragile global economic context, real GDP growth may fall below trend levels in several quarters.”
The key issue for investors is whether the Fed has adopted sufficient austerity to bring the economy back from the hot third quarter, and, as Fed Chairman Powell recently pointed out, the central bank will need to see economic activity slow down to ensure that prices continue to cool.
In a discussion at the New York Economic Club, Powell said: “The economy we have is certainly very resilient. There are many predictions that the United States economy will fall into recession this year. But not only has this not happened, but growth is accelerating.” “This year's performance is higher than the long-term trend. So it's amazing."