The U.S. economy has been doing so well lately that when the Federal Reserve updates its outlook later this month, it will probably have to double its estimate for growth in 2023.
After a string of better-than-expected reports on everything from consumer spending to residential investment, experts have been raising their predictions for the gross domestic product.
One unofficial estimate from the Atlanta Fed that is generally used says that it grew by 5.6% on an annualised basis in the third quarter.
That’s a significant change from three months ago when officials last checked their numbers, and everyone thought the economy would stop growing in the next quarter.
It could be enough for Fed officials to change their plans for cutting interest rates in 2024.
“Consumer spending was strong in June and July, so the third quarter is almost a done deal at this point,” said Stephen Stanley, chief economist at Santander Capital Markets U.S., who predicts 3.7% growth from July to September. “5% seems too high, but it’s not impossible.”
If GDP growth were higher than 3.2%, it would be the best quarter since 2021, when the U.S. was quickly getting over the shock of the pandemic.
In sharp contrast, the outlook for China has gotten worse in recent weeks because of a worsening property problem.
When Fed officials last updated their projections for the U.S. in mid-June, they showed that the average policymaker thought GDP would only grow by 1% in 2023.
At the time, that was a better prediction than the one made in March, which said there would be a recession this year.
Omair Sharif, head of Inflation Insights, says that the number will go up to 1.8% or 2% in the new projections released after the central bank’s policy meeting on Sept. 19 and 20. However, the outlook for the unemployment rate could be lowered.
Sharif said that the increase in growth could also lead Fed officials to cut the rate cuts they had planned for next year by 75 basis points instead of 100.
Large-scale improvement
The Atlanta Fed tracker, different from policymakers’ quarterly expectations, is volatile and will probably be adjusted before the government releases its first official read on current-quarter growth at the end of October.
But it shows that most people’s moods have been getting better over the past few months.
The idea was supported by a monthly Institute for Supply Management report on the U.S. services sector that came out on Wednesday and had better-than-expected numbers.
Even though people are getting more optimistic, the central bank has hinted that it will probably keep its primary interest rate the same at its meeting in September.
The rate was raised in July from 5.25% to 5.5%, the highest amount in 22 years. On Tuesday, Fed Governor Christopher Waller said that policymakers can now “proceed carefully” because recent data shows that inflation is still going down.
On Wednesday, Susan Collins, the president of the Boston Fed, said that more tightening might still be needed.
Diane Swonk, the chief economist at KPMG in Chicago, said, “The economy grew faster over the summer, but the Fed is willing to wait until September.” “The most likely thing right now is a soft or “softish” landing.”
Even though the chances of a recession are lower now, most analysts still think growth will slow in the fourth quarter.
Rising petrol prices, the return of student loan payments, and the chance of a government shutdown are all things that could hurt the economy.
