Executive Summary: Gross Domestic Product grew at a better-than-expected annualized rate of 3.5% in Q3, compared with 4.2% in Q2. While Q3 GDP growth was strong, its deceleration from Q2 reflected a downturn in exports and nonresidential fixed investment. Growth was driven by a strong 4% gain in consumer spending and an increase in government spending. Consumer spending comprises more than two-thirds of GDP. Economic growth remains on track for its strongest performance since the global financial crisis.Fed Watch: Given strong employment growth this year, today’s announcement virtually ensures the Fed will maintain its current approach to monetary policy normalization. Nevertheless, a key measure of inflation—the PCE price index (personal consumption expenditure)—came in well below expectations (1.6% vs. 2.2% expected), so inflation worries likely are unfounded and likely won’t drive the Fed past current expectations. We expect another rate increase in December and maintain our forecast that the 10-year Treasury rate is much more likely to remain above 3% by year’s end, absent a black-swan event. The Fed has maintained its stance to reduce its nearly $4 trillion balance sheet. As of today, the 10-year Treasury stands at 3.1%. The 10-year breakeven inflation rate—a measure of markets’ expectation of inflation 10 years from now—is just below 2.1%.