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US GDP Growth Sped Up in Q3: How Will It Impact Fed’s Decision?

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US GDP growth sped up in Q3

According to a preliminary estimate from the US Bureau of Economic Analysis, US GDP showed a huge improvement in 3Q16. US GDP surprised the market with a growth rate of 2.9% in 3Q16. In 2Q16, GDP rose 1.4%, which beat the market expectation of a 2.5% rise.

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Components of GDP

The GDP growth primarily came from positive contributions from exports, private inventory investment, personal consumption expenditure, and federal government spending. Residential fixed investment and state and local investment provided a negative contribution.

The rise in economic growth is a positive sign for the US economy (QQQ) (SPY) (IVV) as is the improvement in personal consumption expenditure. The Fed has taken various steps to spur economic growth in the United States (VFINX) (IWF) like monetary stimulus in the form of quantitative easing and the zero-interest rate policy.

In September, the Fed maintained the status quo due to weaker inflation. Now concerns about inflation are also easing. On a yearly basis, it stood at 1.5% as of September 2016. Economic growth, which is one of the major concerns for the central bank, is now showing improvement. All the above indicators suggest that the chances of a rate hike in December are increasing.

In the next part of this series, we’ll analyze the US consumer sentiment index in October 2016.

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