The US economy has been on fire in Q3, with GDP growth expected to hit a scorching 4.3% annualized rate, nearly double the previous quarter’s pace.
This business economic heatwave has been fueled by a robust jobs report and a surge in consumer spending, which makes up almost three-quarters of US economic activity.
However, this rapid growth isn’t all sunshine and rainbows. The Federal Reserve is sweating bullets over inflation, which stubbornly remains above its target rate.
Fed Chair Jerome Powell, speaking in New York last week, acknowledged the economy’s resilience but warned that such growth could “put further progress on inflation at risk.”
The rising tide of the economy has also lifted borrowing costs, as seen in the recent spike in 10-year treasury yields.
This uptick threatens to put a damper on economic activity, with consumers and corporations feeling the pinch in their wallets. The housing market is already feeling the chill, with high mortgage rates causing a slowdown.
Major housing industry groups have expressed “profound concern” over these rising rates, urging the Fed to put the brakes on further rate hikes.
The Fed, however, seems set on one more rate increase this year, as per their statement last month.
As we look ahead, all eyes will be on the Fed’s rate-hike decision on Nov. 1. The question on everyone’s lips: Will the Fed’s efforts to cool down the economy put out the fire, or just fan the flames of inflation? Only time will tell.