US Economy Defies Gravity: GDP Revised Up to 4.4%, Cementing Fed's "Hold" Stance

The narrative of a slowing US economy was dealt a significant blow on Thursday as revised data painted a picture of exceptional resilience. The US Bureau of Economic Analysis (BEA) reported that Q3Real GDP expanded at an annualized rate of 4.4%, an upward revision from the previous 4.3% estimate and the fastest pace in two years.

This robust growth data, combined with a labor market that refuses to crack, suggests the Federal Reserve will face little pressure to cut rates at its upcoming January meeting.

Consumer Strength Anchors Growth

The primary driver behind the upgrade was a stronger-than-expected performance in exports and a reduction in the drag from inventory adjustments. However, the core engine of the US economy—consumer spending—remains the star performer.

• Consumer Spending: Rose 3.5%, with service sector expenditure hitting a three-year high.
• Labor Market: Initial jobless claims remained largely unchanged at 200,000, defying tech sector layoff headlines and signaling continued tightness in employment.

These figures complicate the picture for those betting on an imminent recession or aggressive Fed easing. As businesses reportedly front-loaded imports to beat potential tariffs from the incoming administration, the underlying demand signals remain unambiguously positive.

Inflation: Sticky but Stable

While growth roars, inflation remains a nagging concern for policymakers. The Core Personal Consumption Expenditures (PCE) price index—the Feds preferred inflation gauge—held steady at 2.9% for the quarter (annualized), matching market expectations.

While not accelerating, inflation remains comfortably above the Feds2% target. With growth running this hot, the “Goldilocks” scenario of disinflation amidst growth seems intact, but it grants the Federal Reserve ample runway to keep interest rates restrictive to ensure price pressures do not reignite.

Market Reaction

The US Dollar Index (DXY) held steady near 98.65, finding support from the strong data which reprices the Treasury yield curve. Wall Street futures nudged higher, interpreting the growth data as a sign that corporate earnings can weather higher rated for longer.