On Friday the BEA released Q3 2012 GDP, the first of four estimates showing 2.0% growth up from 1.3% in Q2. Judging by the reaction in the bond market, the results seemed rather questionable. The biggest concern would be the government component, which contributed 0.71% growth in Q3 versus subtracting (0.14%) in Q2.
Another notable was the price deflator moving from 1.6% in Q2 to 2.8% in Q3. This is a big jump in inflation and is perhaps why the latest FOMC statement seemed more focused on inflationary risk than in the past. Though the Fed was still somewhat muted.
The price deflator is the estimate of inflation used to adjust nominal to real GDP. So when the government uses a higher