US growth in the third quarter was at its strongest since the beginning of last year, suggesting that a deepening housing recession and turmoil in the credit markets have yet to seriously upset other parts of the economy reports the Financial Times.

The Federal Reserve is widely expected to cut interest rates by a quarter point on Wednesday to 4.5 per cent, following its half-point reduction in its last meeting amid fears over the credit squeeze.

US tops global competitiveness index – Oct-31Data add to gloom on US economy – Oct-30View of the day: US dollar – Oct-30Lawrence Summers: How America must handle the falling dollar – Oct-28Clive Crook: Settle down for some budget theatre – Oct-28Editorial comment: Dollar do-nothings – Oct-22But the strong growth report, combined with weakness in the dollar and rising oil prices which threaten to boost inflation, leaves the Fed with a tough decision. Some observers worry that another rate cut might be seen as a bail-out of the financial-sector companies worst hit by the credit market troubles.

Economists also remain concerned about the pace of US growth in the final quarter of the year. “Things look very different post-turmoil,” said Ian Shepherdson of High Frequency Economics.

Others said growth was much higher than expected because of the build-up of inventories, which rose to an annual rate of $15.7bn compared with $5.8bn in the second quarter.

“All of the upside surprise was in the inventory component. This translates into a reduction in the expected growth performance in the fourth quarter,” said David Greenlaw of Morgan Stanley.

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