The U.S. economy is one of the best on record.

U.S. GDP came in at a better-than-expected rate of 3.5% for the third quarter.

The Bureau of Labor Statistics reported another 250,000 jobs in October 2018, which was way above forecasts for 190,000.

In addition, the number of employed Americans has never been higher at 156,562,000.  Even wages and salaries rose 3.1% in the third quarter, the biggest increase in a decade, according to the Labor Department.

Granted, unemployment remained at 3.7%, but this is the lowest rate since 1969.

Consumer spending just increased 0.8% in October 2018, exceeding the 0.5% estimate.  Consumer sentiment remained strong in early November 2018, according to the University of Michigan report, as well.

And, a survey of consumer expectations by the Federal Reserve Bank of New York found that household income growth and spending expectations are increasing.

In addition, the U.S. Commerce Department estimates GDP grew 3.5% in the third quarter, which follows the rapid 4.2% growth in the second quarter.  And the International Monetary Fund estimates that U.S. growth at 2.9%, which is faster than most other countries.

But as great as this all sounds, it comes at a heavy cost.

One that may be partially responsible for markets swinging lower in recent weeks.

A strong U.S. economy may be bringing the market down.  In fact, it’s so strong the Federal Reserve is aggressively raising short-term interest rates, and reducing its balance sheet.

As the Federal Reserve raises rates, it’s attracting foreign investors, which has also driven the U.S. dollar to recent highs.  That’s also a problem because a stronger dollar can weaken commodity prices, which are priced in U.S. dollars.

In fact, a stronger dollar has already crushed commodities like oil, which fell 20% recently.

At the same time, a stronger dollar can cut into the profits of multi-national companies that are all over the Dow Jones and S&P 500 indexes.  Fortunately, it doesn’t impact small cap stocks, as much with many having more of a U.S. focus.

From here, it’ll be interesting to see what the Federal Reserve decides to do next.

If the Fed raises rates and continues to unravel its balance sheet, they could wind up weakening the economy and the markets. It’s an unintended consequence of strong U.S. growth.

Whatever may happen next, we’ll keep you up to date in The Cheap Investor.