① U.S. Treasury officials said on Tuesday that the U.S. economy is expected to grow at a rate of 3%, and in such an environment, the Federal Reserve can still continue to lower interest rates; ② Investors are digesting a question: Will the much better-than-expected U.S. third-quarter GDP data prevent the Federal Reserve from cutting interest rates next year?
U.S. Treasury officials said Tuesday that the U.S. economy is expected to grow at a rate of 3 percent, and that the Federal Reserve can continue to lower interest rates under such circumstances.
In an interview, Joe Lavorgna, an advisor to U.S. Treasury Secretary Bessen, said that the U.S. economy is experiencing a "boom without inflation" thanks to President Trump's deregulation, growth-promoting policies, and capital spending.
Lavorgna points out that if the economy continues to grow at 3% next year, driven by supply-side expansion, this will mean lower inflation. He emphasizes that if the inflation-adjusted real interest rate remains unchanged, then against the backdrop of falling inflation, interest rates will actually exert a stronger restraining effect on the economy.
“Therefore, the Fed can continue to cut rates,” Lavorgna said. “The Fed should cut rates based on its own projections of the neutral rate, while also recognizing that interest rate-sensitive economic activity remains exceptionally weak, and monetary policy has the greatest impact on these areas.”
Earlier this month, the Federal Reserve announced a 25-basis-point rate cut, lowering the target range for the federal funds rate to 3.5%–3.75%.
At the same time, policymakers have also signaled a possible pause in rate cuts. Federal Reserve officials currently only anticipate one rate cut throughout next year, and the committee remains divided on how to bring inflation back to the 2% target.
Investors are digesting the question: Will the much better-than-expected US third-quarter GDP data prevent the Federal Reserve from cutting interest rates next year?
Data shows that the annualized GDP growth rate of the United States reached 4.3% in the third quarter. Among them, consumer spending, which accounts for about 70% of economic growth, increased by 3.5%, exports rose sharply, and trade contributed 1.6 percentage points to GDP.
Although overall GDP performed strongly in the third quarter, business investment growth slowed to 2.8%, with equipment investment growth falling to 5.4%. Despite data centers... Despite the continued investment boom, investment in non-residential buildings is shrinking at an annualized rate of 6.3%.
Lavorgna believes the weakness in construction investment is due to the Federal Reserve keeping interest rates at excessively high levels.
“If interest rates fall, coupled with our policy of expensed investment in factories, we will build more projects next year,” he said. “This will create high-paying construction jobs, and a lot of capital will be poured into these new buildings that can be fully expensed. Of course, these jobs will attract workers because manufacturing wages are above average.”
Lavorgna also pointed out that people have overestimated artificial intelligence. The impact on GDP data is that a large portion of these expenditures are business-to-business (B2B) transactions, which are not directly included in GDP.
He cited widely accepted economic growth estimates from the Atlanta Federal Reserve, suggesting that growth in the fourth quarter could reach 3%.
“If this figure is correct, then the full-year GDP growth rate will be slightly below 3%, which is already quite remarkable,” Lavorgna said. “Therefore, achieving around 3% GDP growth next year is entirely possible, and could even be higher.”
(Article source: CLS)
