US economy expands 3%

The US economy is continuing to motor along at a fair pace. That’s according to the first third-quarter growth estimate which has come in better than expected at 3%.

Straight away though, it’s worth saying that much of this can be put down to a sizable inventory rebuild. That lifted growth by 0.7ppt and of course doesn’t tell us an awful lot about the underlying economic trend, a task also complicated by the effect of the recent hurricanes.

But does any of this matter for the Fed? For a long time now, policymakers have seemed pretty comfortable about growth. Instead, inflation is still the far bigger conundrum

That said, it’s clear the US economy enjoyed another quarter of solid consumer spending, supported by the tight labour market. Business spending was also strong, backing-up what we’ve seen in recent business surveys (many of which are now at 10+ year highs).

But does any of this matter for the Fed? Well, for a long time now, policymakers have seemed pretty comfortable about growth. Instead, with core PCE having fallen back significantly over recent months, inflation is still a far bigger conundrum. The core view on the committee is still that much of the recent dip is down to temporary factors, and with pipeline pressures building given higher commodity prices and the weaker dollar, we also suspect inflation will recover over the next few months.