Dr. Vince Malanga, president of LaSalle Economics, says real GDP grew at a 2.8% rate in the summer, with inflation at 1.8%, signaling strong corporate profits if sustained. Federal spending and consumption were key drivers, he notes, while trade and construction underperformed. Although business investment was stable, external events like hurricanes and strikes impacted the quarter.
The Federal Reserve is expected to cut rates, though Malanga signals future economic stability may be threatened by conflicting survey data, recent steepening of the yield curve, and a federal deficit near 7% of GDP. Long-term rates may be rising due to investor concerns over fiscal sustainability, potentially signaling discontent with growing federal red ink. Housing markets showed signs of a recovery but were negatively impacted by rising rates.
Malanga says both presidential candidates have not focused on addressing the deficit, favoring tax cuts and subsidies instead. The Fed, which has traditionally stayed clear of fiscal policies, might need to step in, he believes, with Chair Jerome Powell likely considering whether to counter deficits or monetize debt.
Malanga’s bottom line: The sustainability of the current growth and low inflation relies on fiscal responsibility and economic adjustments moving forward.
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