Early estimates of US economic output for the fourth quarter indicate a robust pickup in growth from the mild gain reported for Q3, according to recent nowcasts.

The official Q4 data from the Bureau of Economic Analysis will be released in late-January and so the current estimate should be viewed cautiously – a lot can change over the next two months. But for the moment, the outlook is upbeat.

The current estimate indicates 5.0% growth for the October-through-December quarter, based on the median of several nowcasts compiled by CapitalSpectator.com. Using the median data point for guidance suggests the economy is accelerating following a dramatically softer-than-expected 2.0% gain in Q3.

Although the Q4 profile is encouraging, higher inflation is a risk factor.

“This is not the inflation of the 1970s,” explains Tyler Cowen, an economist at George Mason University. He adds that “pandemic macroeconomics is a new macroeconomics. We are facing new and unprecedented challenges, and we cannot look to past data to get a sense of how to calibrate our choices. We are to some extent flying blind.… We should be genuinely uncertain here about what to do next.”

Fed funds futures currently estimate a near-zero probability that the Federal Reserve will raise interest rates at the Dec. 15 policy meeting to combat the recent surge in inflation. The market’s probability estimates gradually rise in 2022, reaching a 50%-plus probability by June. The question is whether the central bank will be forced to begin raising rates sooner than the market expects. Much will depend on incoming inflation data. Last week’s consumer inflation report for October surprised economists with a substantially higher-than-expected gain. The consumer price index at the headline level rose 6.2% last month vs. the year-earlier period — the highest inflation rate since 1990.

“The supply constraints that have held back growth and pushed up inflation this year could easily persist or worsen,” advises Morgan Stanley, a bank. “In such a scenario, we would have notably weaker growth but higher inflation, and judging from central bank communications, more aggressive policy tightening. Indeed, in that scenario, we see the Fed raising interest rates in the middle of next year.”

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If elevated inflation persists, the rosy estimates for economic activity in early 2022 could be vulnerable to downgrades, particularly in real (inflation-adjusted terms).

“Rising employment costs suggest the risks are skewed towards higher for even longer on inflation, together with the fact a record proportion of companies expect to raise their prices further in the coming three months,” says James Knightley, chief international economist at ING.

Meanwhile, the deeper we move into the current quarter, the more reliable the Q4 growth nowcast. Given that we’re about halfway through the quarter suggests that the upbeat nowcast reflects a substantial amount of actual output. Although it’s difficult to estimate the exact change in GDP, there’s a reasonable case for expecting firmer growth vs. Q3. Another way to think about Q4: short of an epic and, for now, unlikely collapse in economic activity between now and the end of the year, the final quarter of this year looks set for a strong rebound in growth.

Thanks to elevated on persistent inflation, on the other hand, 2022 is looking more uncertain by the week.