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US GDP grows 3.9% in Q3 - are rate hikes now imminent?

Updated: Sep 13, 2018

Author: Ian Pryor

The US economy beat analyst expectations and grew more than expected in Q3. The Commerce Department had last month predicted a Q3 GDP growth rate of 3.5%, taking into account upward revisions both for consumer spending and business spending.

It is quite clear that the US economy has now firmly reasserted itself (in case anyone had forgotten or doubted it) as the world's leading economy. In fact this news follows the strong Q2 growth of 4.6%, meaning that the US has now seen its strongest back to back quarterly growth since 2003!

This is positive news, especially given that recent headlines have centred around a return to recession for Japan, and lacklustre growth prospects in the Eurozone and China.

But, does all this positive economic data suggest that the interest rate hikes that keep getting pushed back, are now more likely to be sooner? Yes, I think, quite possibly so. The hike, which is of course inevitable, has been continually delayed, simply because economic recovery has so far been sporadic and thin, and probably not resilient enough for rising interest rates. However, such strong data in the biggest economy in the world, will no doubt accelerate the start of the hikes, though I still expect a gradual rising over the next couple of years. The Fed has always said that rates would rise when the US economy does better than expected. Interest rates in the US have so far remained near zero since the end of 2008.

US stocks rose slightly as the news was released, but ended slightly down with the Dow Jones finishing off -0.2%.

Ian James Pryor is a highly qualified financial planner and investment adviser based in Singapore as the Managing Partner of the Expat Advisory Group at IPP. He has a BA(Hons) in Economics and holds licenses in both Singapore and Hong Kong, as well as professional certification from around the world including the UK. IPP is Singapore's oldest and largest Licensed Financial Adviser, with offices in Singapore, Hong Kong and Malaysia, Assets Under Advisory of $2 billion, and more than 30,000 clients worldwide.

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