The BEA released its update on the U.S. GDP (first estimate) for the third quarter: The growth rate reached 1.5% in Q2 – only 0.1 pp lower than market expectations. But this news came after the Fed released a relatively hawkish statement. In the second quarter the GDP grew by 3.9%. The main reasons for the decline in the GDP growth rate was due to downturn in inventories and drop in exports. The strong U.S. dollar may have been among the reasons for the fall in exports.
The market’s reaction wasn’t too impressive as the Yen/USD only modestly rose on the day the report came out, as indicated in the table below.
Source: Bloomberg, BEA
This report wasn’t too impressive and still puts a lot of weight on the last quarter. The current annual growth rate for the year – based on the first three quarters – is around 2%, which is far from impressive. Let’s not forget that the Fed still expects the GDP to grow by 2.1% this year and the IMF by 2.6%. The GDP for Q4 will have to pick up in order to offset the adverse impact of lower growth rate in Q3. In any case, lower growth is likely to make it even harder for the Fed to start raising rates in December.
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