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Following a strong growth in 2014Q2 (4.6%), 2014Q3 real GDP growth has been revised up to 5.0% from 3.9% last week. Data currently available also point to a relatively strong fourth quarter. With three quarters of exceptional growth, some people start to think that U.S. economy has finally reached the point of strong further recovery. We believe we cannot rule out the possibility that the U.S. economy will run out of steam by next Spring.

Much of the growth of real consumer spending is due to the decline of inflation. It is notable that nominal spending did not grow that much. With inflation continue to decline, thus boosting real consumption, real GDP growth is likely to be relatively strong for another quarter in Q4 this year. But these effects should be temporary as long as nominal income continues to grow at current slow pace. By the spring of 2015, it is expected that quarterly GDP growth will be back closer to the much slower underlying trend (the average of the past 8 quarters is 2.5%).

The evidence of faster GDP growth in Q4 may strengthen expectations for rate hike by the Federal Reserve in 2015. It is unlikely the FOMC's first rate hike will come before the midyear. Nevertheless, in the near term, fixed-income market may price in a greater probability of an earlier move by the FOMC.