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The U.S. economy continues to grow at a strong rate, which likely will induce the Federal Reserve to continue raising rates at a gradual pace, explained analysts at Wells Fargo.  

Key Quotes:  

“U.S. real GDP grew at an annualized rate of 3.5% in Q3-2018 on a sequential basis. The outturn, which was a bit stronger than the consensus forecast, represents a modest downshift from the 4.2% rate that was notched up in Q2. The overall rate of real GDP growth in the third quarter was driven in part by robust growth in real personal consumption expenditures (PCE), which surged 4.0%. The strength in real PCE in Q2 (3.8%) and Q3 likely reflects, at least in part, the boost to real disposable income that was delivered by reductions in personal income tax rates earlier this year.”

“The effects of expansionary fiscal policy also showed up in government spending, which shot up 3.3% in the third quarter, the strongest sequential rate of growth in more than two years. Another boost to real GDP growth in the third quarter came from stock-building.”

“But not everything was positive in the GDP accounts. Specifically, overall fixed investment spending contracted 0.3%.”

“Growth downshifted a bit in Q3 and we look for some further slowing in the quarters ahead. That said, the U.S. economy continues to grow in excess of the rate that most analysts consider to be its long-run potential growth rate.”

“With the labor market more or less at “full employment” and with some measures of inflation trending higher, we look for the Federal Reserve to continue raising rates at a gradual pace for the next year or so.”