U.S. Third-Quarter GDP Climbs to 3.4%, Outpacing Predictions Amid Rising Inflation

In brief

• U.S. GDP grew at an annualized rate of 3.4% in the third quarter, exceeding the 3.2% forecast.
• Consumer spending and AI infrastructure buildout were the primary drivers of the economic expansion.
• Inflation accelerated in September, with the annual rate reaching 3.6% according to the personal consumption expenditures price index.
• Market expectations point toward a potential interest rate hike by the Federal Reserve in December.

Economic Growth Surpasses Expectations

The Bureau of Economic Analysis announced that the gross domestic product expanded by 3.4% during the third quarter, which is an annualized rate (US economy grows faster than expected in report out just ahead of elections – The Guardian) (U.S. GDP grows 3.4% in the third quarter as inflation squeeze persists – Investing.com). This figure surpassed the 3.2% pace that economists polled by Reuters had projected. The data, which represents an advance estimate from the Bureau of Economic Analysis, was released on Thursday. Before the announcement, growth forecasts varied between 1% and 4.2%.

Drivers of Economic Expansion

Growth was supported by sustained consumer spending and a rapid expansion of infrastructure related to artificial intelligence. These factors helped offset the downward pressure caused by elevated oil prices linked to the Middle East conflict. Business investment in facilities and equipment tied to AI also contributed to the expansion. Despite the ongoing application of trade tariffs, consumers maintained their spending despite rising costs.

September Inflation Data

Price increases accelerated in September. The personal consumption expenditures price index rose 0.5% on a seasonally adjusted basis for that month, bringing the annual inflation rate to 3.6% (Third-quarter U.S. GDP increases a better-than-expected 3.4% as September inflation accelerates – CNBC). The monthly reading matched the Dow Jones consensus, while the annual figure was 0.1 percentage point below expectations. Core PCE, which excludes food and energy, showed a monthly increase of 0.3% and an annual increase of 3.1%, matching forecasts. Officials generally consider the core measure a more reliable indicator of long-term inflation trends.

Outlook for Interest Rates and Sentiment

The Federal Reserve maintained its current interest rates at its October meeting, but market expectations suggest policymakers will raise borrowing costs at their final session of the year, scheduled for December 8–9. The GDP report is the final major economic indicator released before the midterm elections next week. Public sentiment contrasts with the strong economic figures: consumer confidence has declined sharply, and President Donald Trump's approval rating is at a low point. Many Americans report that daily expenses remain a financial burden even as the wider economy expands (With days to go before the midterms, data shows the U.S. economy is doing well – NPR).