Key Highlights

● The GDPNow model points to the strongest reading in a year.

● A wider trade deficit could subtract from headline GDP.

● A strong reading could strengthen the case for a Fed hike.

● Rising wholesale inventories could partly offset the trade drag.

Ahead of the official report on third-quarter economic growth, one closely watched model is flashing a bright signal, with the Atlanta Fed's GDPNow tracker pointing to a strong third quarter, its strongest reading in a year, giving economists reason to expect a robust number.

The reading lines up with the Federal Reserve's own assessment, with the central bank's statement saying economic activity is expanding at a strong pace.

Why It Has Economists Talking

A strong third quarter would confirm the economy has kept powering ahead despite higher interest rates and oil prices above $100 a barrel, with the Fed noting that domestic spending has held up despite elevated uncertainty and that productivity growth and capital investment are strong.

Not all of the data pointed the same way, as the September advance goods trade deficit widened more than economists expected, which could shave something off the headline GDP figure, though wholesale inventories rose by more than forecast, which could add to growth and offset some of the trade drag.

What It Means for the Fed

A strong growth number could strengthen the case for another rate hike, since the Fed left its benchmark rate range unchanged, but two officials dissented in favor of a hike, and market odds of a December increase rose after the decision.

Bond markets responded more forcefully than stocks to the backdrop, with long-dated Treasury yields climbing sharply, while the 2-year yield edged slightly lower.