As Good as It Gets?

Jon Banking, Economy, Fiscal Policies, Market Commentary

US GDP growth reaching 5% in Q3 raises lots of questions. Are things finally getting better? Is the economy reaching breakout speed? Is Fed tightening now on our doorstep? Is this the beginning of a sustained upward trend or the apex of our economy before we get dragged down by global conditions?
The chart below shows quarterly GDP growth since the financial crisis. After struggling near 2% annualized growth for many years, the last five quarters make it appear that the economy has shifted gears. This in the face of a sputtering global landscape. It’s also rather remarkable that we are seeing growth without inflation … truly a Goldilocks environment, but how long will it last?
This week’s GDP figure caused a severe pullback in Treasuries. In the blue circle below you can see the massive spike in the 10-year yield as Treasury prices sold off. Rising interest rates reduce the value of existing bonds and it appears many investors interpreted the GDP data as implying that we may soon see rates ratchet higher.

This post was published at FinancialSense on 12/26/2014.