Latest US GDP: How Does It Affect The Fed?

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The US economy maintained a strong growth rate in the third quarter as subdued inflation and strong wage gains bolstered consumer spending ahead of a presidential election focused on economic issues.


Gross domestic product rose at an annualized rate of 2.8% in the last quarter, based on preliminary estimates of third-quarter GDP by the Commerce Department's Bureau of Economic Analysis on Wednesday. Economists polled by Reuters had forecast GDP to grow at a rate of 3.0%.


Growth estimates range from 2.0% to 3.5%. The economy grew at a rate of 3.0% in the second quarter. This growth rate is well above what Federal Reserve policymakers consider a non-inflationary growth rate of around 1.8%.


Preliminary GDP estimates were published less than a week before Americans vote on November 5 to choose between Vice President Kamala Harris, the Democratic Party nominee, and former President Donald Trump.


Surveys show that there is fierce competition. Americans, who have consistently said the economy is a key election issue, have been weighed down by high food and housing costs, even as the economy continues to defy recession forecasts and outperform its global peers.


Polls consistently give Trump the edge when asked who is better suited to run the economy, including in the latest Reuters poll released on Tuesday.


The report was supplemented by an annual review published last month, which showed that the economy was much stronger than previously estimated. The revision narrowed the gap between GDP and gross domestic income (GDI), an alternative measure of growth, through the second quarter.


Before the revision, some economists argued that the gap showed economic activity was overestimated. The economy remains resilient despite interest rate hikes of 5.25 percentage points in 2022 and 2023 from the US central bank to control inflation.


The price index of personal consumption expenditures, excluding the variable food and energy components, rose at a 2.2% rate in the third quarter, slowing significantly from the 2.8% rate in the second quarter.


With inflation nearing the Fed's 2% target, the central bank is now easing policy and kicked off the cycle last month with an unusually large rate cut of half a percentage point.


This reduction in borrowing costs, the first since 2020, lowered the Fed's policy rate to a range of 4.75%-5.00%.

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