Not Exactly a Cut-Rate (or Rate-Cut) Economy

What a day for a Federal Reserve meeting! As central bankers spend their afternoon fretting over what could go wrong in the economy, this morning several things went pretty right. A trifecta of good news on jobs, spending, and economic growth all provided surprises to the upside.

Federal Reserve Chairman Ben Bernanke at the International Monetary and Financial Committee meeting.

First up? Gross domestic product. The third quarter looked positively rosy, with the economy expanding at a 3.9 percent annual rate, the Commerce Department said. That blew out expectations of a more moderate 3 percent gain and topped 3.8 percent second-quarter growth, even as the nation suffered through a credit crisis and a mortgage meltdown. Surging exports and better business investment offset yet another dismal month for (you guessed it) housing, hinting that healthy overseas growth is spurring demand for U.S. products abroad.

Better yet: The GDP report's measure of all-important consumer spending also managed a hefty rebound. Spending muscled through with a 3 percent increase in the quarter, soothing fears of a consumer slowdown after a paltry 1.4 percent second-quarter rise—not too shabby for cash-strapped shoppers facing falling home prices and the effects of $90-a-barrel oil.

While economists do expect spending to moderate a bit through the end of the year, the final pillar of a recession-beating economy—job growth—had a good day, too. The ADP Employment Report, a survey of private-sector job growth, had its best monthly gain since June. Private employers added 106,000 jobs in the month, well above the 60,000-job rise predicted by Reuters. That bodes well for Friday's closely watched national employment report from the Labor Department.

In all, robust growth and accompanying inflation pressures add up to a bit of a headache for Ben Bernanke and company as they ponder a Halloween interest rate cut. Mike Englund, chief economist at Action Economics, writes that Fed policymakers finishing up a two-day fete "probably wish that the event was only a one-day meeting." The Fed, still concerned over credit market woes, is most likely going to shave another quarter point off the federal funds rate to 4.5 percent, but further cuts just got a bit more complicated.