Reuters (Reporting by Lucia Mutikani; Editing by Andrea Ricci)

U.S. economic growth braked sharply in the third quarter as businesses cut back on restocking warehouses to work off an inventory glut, but solid domestic demand could encourage the Federal Reserve to raise interest rates in December.

Gross domestic product increased at a 1.5 percent annual rate after expanding at a 3.9 percent clip in the second quarter, the Commerce Department said on Thursday.
The inventory drag, however, is likely to be temporary and economists expect growth to pick up in the fourth quarter given strong domestic fundamentals.
The Fed on Wednesday described the economy as expanding at a "moderate" pace and put a December rate hike on the table with a direct reference to its next policy meeting. The U.S. central bank has kept benchmark overnight interest rates near zero since December 2008.

"Underlying growth is still strong, or at least, strong enough to handle interest rates not being at emergency low levels anymore," said Jennifer Lee, a senior economist at BMO Capital Markets in Toronto. Prices for U.S. Treasury debt fell on the data, while the dollar trimmed losses against a basket of currencies.

The economy has struggled to sustain a faster pace of growth since the end of the 2007-2009 recession, with average yearly growth failing to break above 2.5 percent. Economists had forecast GDP rising at a 1.6 percent rate in the third quarter. (More...)