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U.S. Q3 GDP grew at 33.1% annualized rate

According to the Commerce Department, the U.S. GDP accelerated at a 33.1% annualized pace in the third quarter, following the worst quarter ever earlier this year. Yahoo Finance’s Brian Cheung joins The Final Round panel to discuss.

Video Transcript

MYLES UDLAND: All right. Welcome back to "The Final Round" here on Yahoo Finance. Myles Udland with you in New York. Earlier this morning, the BEA reporting that the economy grew at a 33.1% annualized pace in the third quarter of the year, a record pace for GDP growth here in the US. And Brian Cheung joins us now to talk a bit more about this number.

And I guess, Brian, put it in the proper context it deserves. Because I think if we look at the second quarter, record decline. That's a managed outcome, right? We had lockdowns in the economy. So obviously, growth would decline. Then we reopened the economy. So it's a managed outcome on the upside. What, to your mind, is the way to make sense of where we think about the economy as we're now two quarters into this recession?

BRIAN CHEUNG: Well, I think another way, Myles, to think about it is that these are numbers that we're looking at that cover three months each, right, quarter two covering March through June, and then quarter three, covering June through September. And that's the reason why, with a crisis that's unfolded as fast as this one has, that we're seeing these huge numbers.

So unfortunately, I am going to have to take all of you through a little bit a numerical lesson here. But if we step back, the BEA announcing this morning that the economy grew at a 33.1% annualized rate in the third quarter. That did beat the Street's estimates of 32%.

But it's important to note that this does not mean that the economy grew by 33%. Instead, what it means is that the economy would grow by 33% if it sustained that pace for another three quarters. And as we know, with the concerns over rising COVID cases and the lack of a vaccine, it's unlikely that that pace is going to be sustained for even another quarter.

So here's another way to think about it. If you look at just the GDP levels, right, the rebound in quarter three certainly helped the economy bounce back. But we're still far from where we were pre-pandemic. If you look at the peak of where we were around quarter four, quarter one of this year, it's about-- it's more than 3% really down that we still are, which means that there's still quite a bit of a hole to plug. And when you even consider that if you were to take the trend line and where GDP was supposed to go, it's an even farther a gap from that point.

So again, that was quite the rebound in the third quarter, a lot of it led by things like housing, which actually surpassed pre-pandemic levels. Thank you, Federal Reserve, for low 30-year mortgage rates. But on the whole, it still tells us that really it's going to be that quarter four, quarter one next year figures, that's really going to tell us what's the true pace of this recovery.

MYLES UDLAND: And then Brian, quickly, of course, Fed meeting next week. You mentioned them. Not likely, this report, to change how they're thinking about the economy?

BRIAN CHEUNG: Definitely not. I mean, this is definitely something that was expected. Whether or not it was going to be 32%, 33%, I think won't matter for the Federal Reserve next week. The expectation is that the Fed will likely hold pat on its policies, although there could be some hints of something like a ramping up of its quantitative easing program. Right now, it's pacing at about $120 billion a month in agency mortgage-backed securities in addition to US Treasuries.

But whether or not they turn that up in terms of volume or maybe have more targeted purchases, for example, on the longer end of the yield curve, that remains to be seen. They could tee that up through communications or in the Powell press conference which, again, by the way, will be Thursday. Usually these meetings are on a Wednesday. But obviously, because of the election next week, they've moved that by one day. So a rare Thursday meeting next week to look forward to.

MYLES UDLAND: All right. Well, Brian Cheung, we will talk to you then. We'll talk to you next month. Have a great weekend. Thanks for joining the show.

BRIAN CHEUNG: Thanks, Myles.