Sometimes, the impossible is possible. Ask the US economy.

Real GDP shot up 4.9% in the third quarter, and core inflation fell to 2.4%, more signs that we are well on our way to the soft landing.

It’s not just one quarter or one data release of good news. So far this year, here are some averages:

• real GDP growth = 3%

• real consumer spending growth = 3%

• real business fixed investment growth = 3%

• unemployment rate = 3.6%

• monthly payroll gains = 260,000

And, again, in the third quarter:

• PCE inflation, excluding food and energy = 2.4%

That’s all very good.

The underlying strength of the economy is solid and broad-based, and, importantly, inflation is coming down rapidly. For two years, we were ‘supposed to be’ in a recession. We were even told one was necessary to get inflation down. I have disagreed from the get-go. Here’s a quote from my post in June 2022—it’s aged well:

Recession, Recession, Recession. The news is grim. Fears are rampant. Should they be? I will say emphatically and with data to back me up: we are not in a recession now. Businesses added almost 400,000 jobs last month, and the unemployment rate held at 3.6% for the third month. That’s outstanding. That’s not a recession …

What else would help get inflation down? More workers. More stuff. Less Covid. Not everyone thinks demand is the primary driver of inflation. I don’t. We are coming out of a deadly pandemic … No, inflation did not come back down quickly last year. Yes, demand came back stronger than supply, but there are signs that supply is catching up. That’s key to bringing inflation down with less hardship.

Sometimes, the impossible is possible.

I could give the caveats and the possible dark clouds today. I am a macroeconomist. That’s what we do, but I’m not doing it today. I don’t expect 4.9% growth this quarter, and a temporary uptick in core inflation is possible. But we will close out 2023 in a better, more balanced place than we entered it. Many said that was not possible.

Good news is good news. Bad news getting better is the best news.

The Fed can be ‘challenged’ by good news. Below the paywall, I discuss the Fed’s “reaction function” and the tools like the Taylor rule often used to translate incoming data to monetary policy. I also share my ‘what to watch’ from the Fed next week.