Given the momentum behind the bond rally and, now, the bull steepener, it was very unlikely that any upward revisions to Q3 GDP data in the US would move the macro-policy needle.
The second estimate of last quarter’s blockbuster growth pace suggested the US economy expanded even more rapidly than initially reported. GDP rose 5.2%, the BEA said.
Consensus expected a smaller upward revision. The range of estimates, from 54 economists, was 4.8% to 5.3%.
Recall that economists originally (i.e., before the advance read) expected a 4.3% pace. So, according to the second estimate, the economy outperformed initial expectations last quarter by nearly a full percentage point.
To the extent the upward revision to the headline growth print had the potential to give bond bulls any sort of pause (and, as noted above, it really didn’t), it was overshadowed by a downward revision to the pace of personal consumption in Q3 (to 3.6% from 4%) and a slight downward adjustment to the core PCE price index (to 2.3% from 2.4%).
I should emphasize: No matter what headlines the mainstream financial media decides to run about the second estimate of Q3 growth, what counted (for traders, I mean) were the downward revisions to the personal spending print and the slight downtick for the core PCE reading.
In addition to those rates-bullish adjustments, wholesale inventories for October printed a notable miss, falling 0.2% against expectations for a gain. That’ll weigh on Q4 growth estimates.
Coming quickly full circle, Chris Waller’s introduction of a tentative timeline on insurance cuts (contingent, of course, on the evolution of the inflation figures) and his rather overt remarks regarding the likelihood that policy settings are now restrictive enough to return inflation to target, is really all that matters right now.
Whether he meant to or not, Waller cemented one of the best runs for bonds since the financial crisis, and it’d take a run of hot current-quarter data (and/or a forceful hawkish broadside from some other prominent Fed official) to derail the overarching narrative, which shifted dramatically in favor of doves this month.
