The Fed received further endorsement for its current tightening path last week as the latest US GDP figures came out stronger than expected. GDP growth for 3Q came in at 3.5% vs the consensus market forecast of 3.4%. The news will be received as a double-edged sword by President Trump who on the one hand will be keen to highlight continued strong economic growth ahead of the US mid-term elections but on the other hand, will be wary of further Fed tightening.
Consumer Spending Grows Again
3Q marked another strong period for the US consumer, boosted by a combination of tax cuts and higher wages along with a tighter jobs market. Consumer spending added 2.7% to the 3Q figure which was also helped by a strong boost in inventories which buffered against the sharp pullback in net exports.
Growth To Moderate In 2019?
Looking ahead, the market is keen to gauge whether US growth will continue to print strongly or if we will see some pullback. Given the likelihood of Q4 activity being boosted by clean-up and rebuilding operation in the wake of recent hurricanes, it is likely we will see another strong figure. However, looking further ahead into next year it is likely that the impact of tighter US financial conditions, in light of recent Fed tightening, will begin to constrain activity leading to a moderation in growth.
For now, the USD Index is sitting just below the year to date highs of 96.94 and currently just above the 50% retracement from 2017 highs. To the downside, support comes in at the 93.40 level where we have a base of previous lows, though for now, focus is on further upside.