Upside Surprises

The economy isn't landing; it's flying high. Following better-than-expected July reports for housing starts and industrial production this morning, the Atlanta Fed's GDPNow tracking model raised Q3's real GDP growth rate to 5.8% (saar) from 5.0%, after raising it from 4.1% yesterday on a better-than-expected July retail sales report (chart). Consumer spending and residential investment are now tracking at 4.8% and 11.4%.

Positive economic surprises are bearish for bonds. The 10-year Treasury bond yield rose to 4.25%, matching last year's high after the releases. It rose to 4.27% about an hour after the Fed released (at 2:00 p.m.) the July FOMC Minutes, which was hawkish if inflation doesn't continue to moderate. We think it will.