U.S. Economy Posts Best Growth in a Decade. Now Will It Last?
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U.S. Economy Posts Best Growth in a Decade. Now Will It Last?

The U.S. economy, after a long, slow climb out of the aftermath of the Great Recession, is truly and finally picking up speed. That appears to be the signal from the Commerce Department’s announcement Tuesday that U.S. gross domestic product surged to 5 percent annualized growth in the third quarter, revised up from 3.9 percent.

The report surprised many economists, who generally expected the third and final revision of the third quarter numbers to come in somewhere around 4.3 percent. The 5 percent mark is the highest growth rate the U.S. economy had experienced in a single quarter since 2003.

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The unexpectedly strong report, along with upbeat data on consumer sentiment and spending, helped stocks surge to new highs, with the Dow Jones Industrial Average jumping above 18,000 for the first time

“2014 is now shaping up to be one of the strongest years of the expansion, despite a weather-suppressed drop in real GDP in the first quarter,” wrote Diane Swonk, chief economist for Mesirow Financial. “Indeed, depending on the outcome for the fourth quarter, growth for the year could now surpass 2.5 percent, which is much better than anyone expected just a month ago.”

“The outlook remains rosy going into 2015,” wrote Paul Dales, senior U.S. economist for Capital Economics. Dales said that fourth quarter growth will likely slow to about 3 percent, which is still a strong showing.

BNP Paribas senior economist Bricklin Dwyer noted that low oil prices and higher recent jobs numbers bode well for the future of U.S. GDP as well. “The solid labor market performance should translate into further income gains going forward, which should continue to support household spending in Q4, along with extra income generated from lower gasoline prices,” he wrote.

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The Obama administration celebrated the announcement Tuesday morning. “The recent robust growth data indicate a solid underlying trend of recovery,” wrote Jason Furman, the chairman of the White House Council of Economic Advisers.

The strong growth trend in the U.S. economy will no doubt increase calls for the Federal Reserve to consider raising interest rates earlier than the central bank’s Federal Open Market Committee might have planned. Just last week, Fed Chair Janet Yellen said that the FOMC was unlikely to raise rates until the end of the first quarter of next year at the earliest.

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The primary reason for raising interest rates would be to head off high inflation, which could damage economic growth. However, inflation has now been below the Fed’s target rate for 30 months, and Yellen appears confident that the Fed has to tools to prevent it from racing past the target of 2 percent once it starts rising.

“The committee is not anticipating an overshoot of its 2 percent inflation objective,” Yellen said last week.

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