Inside Economics Podcast #305- Strong on Paper

The panel argued that the economy looks stronger on paper than it feels underneath. Third-quarter real GDP rose 3.4% annualized, helped by consumer spending, a 1.8 percentage point boost from business investment tied to AI infrastructure, and a large 1.6 point inventory contribution, while net trade subtracted more than 3 points. At the same time, September personal spending was flat in real terms, real disposable income fell, and the saving rate slipped to 3.8%, which raised concerns about how much momentum can carry into the fourth quarter.

Inflation was still running above target, with headline PCE at 3.6% year over year and core PCE at 3.1%, but most of the recent pressure was framed as supply-driven rather than demand-driven. The group pointed to energy, airfare, hotel rates, housing, and AI-related goods prices as the main sources of the overshoot. Mark argued that the Fed cannot easily fix those forces with higher rates, while the others said the AI boom may be becoming more rate-sensitive as credit conditions tighten and markets scrutinize valuations.

On policy, the panel said the FOMC’s upgrade from “solid” to “strong” growth was too optimistic, even if the data are holding up better than feared. They also discussed the Fed’s plan to shift some 2027 meetings away from rate decisions toward strategy sessions, and they ended on the market selloff, which they viewed as a pause driven by rising skepticism about AI spending rather than a confirmed crash.