US GDP Expands 2.6% in Q3, Faster Than Expected; Bitcoin Steady

After two consecutive months of contraction, the U.S. economy rose in the third quarter – a sign that activity remains robust despite the Federal Reserve's aggressive push this year to raise borrowing costs to tamp down inflation.

The nation’s gross domestic product, or GDP, rose 2.6% in the July-September period, according to a fresh report by the Commerce Department. Such growth follows a 1.6% contractions in the first quarter and 0.6% shrinkage in the second, which had prompted speculation that the economy might have entered a recession.

Analysts surveyed by FactSet had predicted a third-quarter expansion of 2%, though some closely followed economists had predicted much faster growth. Ian Shepherdson, chief U.S. economist at the forecasting firm Pantheon, had projected a rate of 3.1%.

Bitcoin was steady in the moments after the report was released, around $20,700.

While the positive number is a good sign, suggesting that activity is expanding even as costs as wages rise, it also might show that the economy can withstand further interest rate increases by the Fed.

And for most of this year, the U.S. central bank's aggressive campaign to tamp down inflation – close to a four-decade high – has weighed on valuations for risky assets, from stocks to cryptocurrencies.

After several months of raising interest rates aggressively, central bankers have recently hinted at slowing down the pace of hikes after its next November meeting for fears of overtightening.

U.S. Treasury bond yields have climbed as a result of the Fed’s changes to monetary policy, which is hurting other financial markets, including crypto assets, down significantly year to date.

Over the past week, however, bitcoin (BTC) was up 5% as traders showed some relief over the prospects of slower interest rate hikes or even a potential Fed pivot. A recent move by the Bank of Canada to raise rates less robustly than expected also gave traders hope that the U.S. central bank will follow suit on Nov. 2-3.

Pantheon's Shepherdson wrote Thursday in a report that the "all the growth" in GDP was due to a "huge swing in net foreign trade," boosted by an "unsustainable" 14% jump in exports and a 6.9% drop in imports.

"The strong dollar and weak global growth will constrain future exports," according to Shepherdson.

"Looking ahead, we expect growth to slow to about 1-to-2% in Q4, thanks to a much smaller kick from trade, and a bigger drag from inventories," Shepherdson wrote.