Investing.com – After the U.S. gross domestic product (GDP) registered its largest expansion in two years, pressure could increase on the Federal Reserve (Fed) to move forward with policy normalization at the end of the year.
In a report, the Bureau of Economic Analysis said that GDP increased to a seasonally adjusted annual rate of 2.9% in the three month period from July to September, from the 1.4% expansion registered in the second quarter of 2016. That was its largest expansion since the third quarter of 2014.
Consensus had penned in growth of just 2.5%.
Despite the headline number, it should be noted that the growth was driven by a 10% jump in exports that compared to the second quarter’s 1.4% increase.
Furthermore, real consumer spending increased by only 2.1%, missing estimates for a 2.6% advance and well below the prior increase of 4.3%.
The headline expansion coincided with the estimate from Goldman Sachs. The investment bank increased its projection on Wednesday to 2.9% from the prior 2.7%.
However, the reading was a far cry from forecasts from regional Fed banks.
On Thursday the Atlanta Fed lifted its estimate to just 2.1% from the prior 2.0%.
The New York Fed’s last forecast, from October 21, was at 2.2%.
It should be stressed that the advanced reading includes many estimates and is likely to change in later revisions.
In any case, the stronger-than-expected reading on the U.S. economy could convince Fed officials to tighten at the end of the year.
Several policy makers have indicated that interest rates could rise in December if the economy remains on track.
Analysts widely believe that the U.S. central bank will hold off on making a move next week due to the fact that the presidential elections take place shortly afterwards on November 8.
In that context, markets price in only a 7.2% chance of a rate hike at the November 2 decision.
Odds for December, however, stood at 78%, according to Investing.com’s Fed Rate Monitor Tool.