Uncle Sam surprised the markets this afternoon by announcing that the US economy was growing at a faster rate than expected.
US gross domestic product (GDP) grew at 2.9 per cent over the last 12 months, the fastest rate for two years.
A consensus of analysts polled by Reuters expected growth of 2.5 per cent.
Up she goes
The news will increase hopes that the US Federal Reserve will hike interest rates before the end of the year.
“The last time US GDP growth surged past two per cent the Federal Reserve raised interest rates. With today’s numbers flying above that watermark, history may be about to repeat itself," said Paul Sirani, chief market strategist at Xtrade.
“The world’s largest economy is being fuelled by a buoyant jobs market, strong levels of consumer spending and healthy trade. If the indicators continue to point upwards for the US then Fed chair Janet Yellen will look to stop things boiling over."
Dennis de Jong, managing director at UFX.com, agreed: “Against a backdrop of global financial uncertainty, particularly in Europe, robust and above expectations US growth will encourage observers and make a strong case for a rise in interest rates."
One thing in the way
In fact, analysts believe that there is probably only one thing in the way of an imminent rate rise.
“Many believe that today’s big bump in growth will assure a December rate rise, but with a US election just weeks away, nothing is certain,” said Sirani.
And according to de Jong this means that – not withstanding today's news – Yellen will still likely wait until December at the earliest.
“However, while the Federal Open Market Committee (FOMC) meets next week, with a Presidential election just days away it is likely to hold fire on any hike until December,” he said.
In separate data, consumer spending slowed from the 4.3 per cent increase noted in the second quarter. Consumer spending accounts for more than two-thirds of US economic activity and increased by 2.1 per cent over the third quarter.