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Will Strong Q3 Growth Put Fed On Hold?

Some Wall Street economists are saying strong third-quarter gross domestic product growth could, counter intuitively, slow the pace of interest rate hikes and put the Federal Open Market Committee on hold at its December meeting.

Some Wall Street economists are saying strong third-quarter gross domestic product growth could, counter intuitively, slow the pace of interest rate hikes and put the Federal Open Market Committee on hold at its December meeting. Other economists, however, don't expect a so-called payback in the final three months of the year. Third-quarter GDP numbers will be released this week.

John Herrmann, director of economic commentary at Cantor Viewpoint, is calling for GDP growth of 4.4%, up from 3.3% last quarter and above the consensus call of 4.1%. He also believes fourth-quarter growth will slip to 3.3% as payback for a strong third quarter. This slow growth would give the FOMC reason to pause in December.

By contrast, William Dudley, managing director and chief U.S. economist at Goldman Sachs, foresees strong third quarter growth of 4.5% and a decent fourth quarter rise of 4%. Dudley thinks hurricane-related rebuilding and a bonus depreciation allowance that runs out at the end of this year will prop up the fourth quarter and not give the Fed a strong reason to pause. The depreciation allowance is part of legislation allowing companies to claim greater depreciation on taxes for investments made until the end of the year.

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