If Americans have the capacity to spend money, they will. That is a useful rule of thumb for understanding the U.S. economy — and the simple explanation for a blockbuster September retail sales report out this morning.

Why it matters: A summer surge in consumer spending appears to have continued into the fall, even with soaring interest rates, bumpy financial markets and higher gasoline prices.

• In effect, consumer spending is keeping a floor underneath the overall economy, keeping a recession at bay — but also standing in the way of inflation coming down more rapidly.

Driving the news: Retail sales were up 0.7% in September, the Census Bureau said, as it also revised upward July and August estimates. Even excluding volatile sales at car dealerships and gas stations, sales were up 0.6%.

• Over the July through September quarter, retail sales rose at a blistering 8.4% annual rate.
• The news drove long-term bond yields to yet another 16-year high as investors priced in hotter growth and higher odds of more interest rate hikes. The 10-year Treasury was yielding 4.82% this morning, up from 4.7% yesterday.

State of play: For all the discussion of headwinds facing consumers — recession worries, higher borrowing costs, the restart of student loan payments — the reality is that the unemployment rate remains extremely low, and wages are rising a bit faster than inflation.

• That's a recipe for Americans to put those paychecks to work, even if the rip-roaring pace of the last three months is unsustainable.

What they're saying: "The death of the U.S. consumer has been vastly overexaggerated," said Mike Graziano, a senior analyst at RSM, in a note.

• "Strong wage gains and a strong labor market continue to give consumers the confidence to spend, and they are doing so."

Of note: Retail sales weren't the only hotter-than-expected data point today, as the Fed reported industrial production rose 0.3% in September. Analysts had expected it to be unchanged.

• That indicates the manufacturing sector shrugged off at least the early phase of an autoworkers strike.

Comments from Fed officials over the last month have had something of a "we're done here" tone to them — a sense that there is a good chance they may not need to raise interest rates again. The September data isn't cooperating.

• Today's retail sales and industrial production reports follow higher-than-expected September numbers on payrolls and the Consumer Price Index.

State of play: The September numbers have not been enough in isolation to reshape the policy outlook. Taken together, they undermine the Fed's narrative that the economy will slow steadily thanks to past interest rate hikes, so the central bank can comfortably wait to see inflation continue to come down.

• "Today's strong report along with a recent string of positive economic surprises suggest the economy carried more momentum than previously thought over the summer," said EY-Parthenon senior economist Lydia Boussour in a note.
• "This will keep the Federal Reserve on high inflation alert," she added, and while it won't be enough to prompt a rate hike at a meeting concluding Nov. 1, "the December meeting will very much remain a 'live' one."

Yes, but: The surge in long-term bond yields over the last couple of months (which resumed after this morning's numbers) means more pain is in store, especially for interest-sensitive sectors like housing and commercial real estate.

What they're saying: "I see an economy that is much further along the path to demand normalization than much of the data would tell you," Richmond Fed president Tom Barkin said this morning in a speech.

• "But the path for inflation isn't yet clear," he said. "We have time to see if we have done enough, or whether there's more work to do."

The bottom line: Fed officials will have to decide whether backward-looking data indicating a hot September or forward-looking impact of financial market moves should be more important in setting policy.