US economic exceptionalism should be on full display this week.

The advance read on Q3 GDP is expected to show the world’s largest economy expanded at a 4.3% pace last quarter, indicative of a resilient American consumer and, more broadly, a growth impulse undeterred by rate hikes.

The Fed is avowedly trying to engineer below-trend growth in order to stifle inflation. 4.3% isn’t below-trend. In fact, it’s well above-trend, and it’s not likely consistent with price stability. There’s too much demand and not enough supply. Of anything, really.

If growth matches estimates, it’ll mean the pace of expansion was the briskest since Q4 of 2021.

I understand the rationale for holding off on another rate hike, and we should absolutely “respect the lags” (so to speak), but I’d be remiss not to state the obvious. Personal consumption is seen posting a 3.9% advance in this week’s GDP report. When paired with a labor market that added 336,000 jobs last month (and note that jobless claims were below 200,000 during October’s NFP survey week), that suggests current monetary policy settings aren’t restrictive at all.

Of course, that’s a naive interpretation. The lags are longer this time for well-documented reasons and labor supply is still catching up to demand after an anomalous shock. The inflation and wage data does suggest the disinflation process is in motion, even as rising home prices, the threat of another oil shock and the legacy of the pandemic-era household wealth boom are impediments.

Whatever the case, growth data like what the BEA is likely to report this week underscores Jerome Powell’s contention that, for now at least, the economy is handling higher rates just fine. Part of that is explainable by the spread between low-cost, fixed-rate debt and high-interest cash buffers. That dynamic applies both to cash-rich corporates and high-income households.

Markets have all but priced out a November rate hike from the Fed consistent with policymaker rhetoric which will go silent this week amid the pre-meeting communications blackout.

Rate hike premium across the December and January FOMC meetings suggests about a one-in-three chance of another hike.

The backdrop for Thursday’s GDP release — and for Friday’s personal income and spending figures and the accompanying PCE prices update — is obviously the ongoing selloff at the long-end of the US Treasury curve.

10-year US yields rose more than 30bps last week, one of the largest single-week increases in years. Complicating matters was a renewed rise in breakevens amid tension in the Mideast. Suffice to say the situation remains touch and go.

“With rates driven by a multitude of factors, investor conviction remains low even as real and nominal rates look highly attractive from a longer-term perspective,” TD’s Gennadiy Goldberg and Molly McGown remarked.

Note that the MOVE is still very elevated. At 135, it’s back near the local highs which prompted its creator, Harley Bassman, to call for a “time out.”

The bond vol gauge is up five weeks running, and the largest Treasury ETF is the most volatile ever relative to US equities.

“Fed speakers’ recently more dovish comments should be encouraging, especially as tightening financial conditions do much of the heavy lifting to slow growth [but] investors are likely to continue waiting for catalysts (such as geopolitical risks or slowing data) rather than catching the falling knife amid technical weakness,” Goldberg and McGown went on. “This could keep rate volatility extremely high in the near-term.”

In addition to the GDP release, September personal spending and PCE prices, investors will be treated to flash PMIs from S&P Global, new home sales, pending home sales and the final read on University of Michigan sentiment for October.

Elsewhere, the BoC and ECB meet. Christine Lagarde will likely keep rates on hold amid a very tenuous outlook for the European economy.

All of this will play out in the long shadow of war. Israel dropped new leaflets on Gaza City over the weekend. The IDF is expected to step up airstrikes ahead of an imminent ground invasion in the north, even as the first humanitarian aid convoys cross from Egypt in the south.