WASHINGTON — The U.S. economy grew at a faster pace than expected during the third quarter, even as inflation accelerated and underscored persistent cost-of-living challenges, the Commerce Department reported Thursday.
Gross domestic product expanded at an annualized rate of 3.4% from July through September, up sharply from 2.2% in the second quarter and outpacing forecasters’ projections, according to government data. The pickup arrived less than a week before Tuesday’s midterm elections that will determine which party controls Congress, presenting a mixed picture of robust top-line momentum alongside voter frustration over high prices.
Spending and AI Investment Propel Output
Household consumption and massive technology expenditures served as primary engines of growth during the summer months. Companies poured money into the specialized computer chips and data centers required to run artificial intelligence systems, ABC News reported. At the same time, domestic consumer spending climbed 0.5% in September, according to CNBC, though the New York Post noted that spending across the entire quarter advanced at a 3.8% rate.
The labor market also signaled underlying stability. Initial jobless claims slipped to a seasonally adjusted 194,000 for the week ended Oct. 24, approaching lows unseen since the late 1960s, according to the Labor Department.
Yet that resilience has not felt uniform across the country. Lower-income families have increasingly depleted personal savings while navigating fuel costs driven higher by the ongoing conflict involving Iran, NPR reported. Government figures placed the national personal saving rate at 3.8% in September, down from 4.1% in August.
Inflation Keeps Heat on the Federal Reserve
Price gauges showed that inflation remains stubborn and well above the Federal Reserve’s 2% objective. The personal consumption expenditures price index jumped 0.5% in September — the sharpest one-month jump since March — pushing the annual inflation rate to 3.6%, CNBC reported. ABC News cited Commerce Department data showing prices were up 3.7% year-over-year.
Core inflation, which strips out volatile food and fuel categories and is closely monitored by policymakers, climbed 0.3% on the month and 3.1% from a year earlier, according to CNBC.
The data landed one day after central bank policymakers held their benchmark lending rate steady between 3.75% and 4%. Fed Chair Kevin Warsh, who stepped into the role in May, told reporters Wednesday that “economic activity is expanding at a strong pace” while acknowledging that domestic spending had remained durable despite international tensions.
“It’s our responsibility to get inflation down,” Warsh said.
After enacting a quarter-point rate increase last month — the central bank’s first rate hike in three years — officials indicated they wanted to review additional information before moving again. However, financial markets now peg the chances of another quarter-point hike at roughly 85% at the Fed’s December meeting, according to the CME Group FedWatch Tool cited by ABC News.
Some analysts cautioned that the headline growth masks broader fragility. Chris Rupkey, chief economist at Fwdbonds, told CNBC that gross domestic product has crossed the 3% annual mark for the first time in a year despite higher energy expenses. But Mark Zandi, chief economist at Moody’s Analytics, told NPR that ongoing tariffs and foreign conflicts leave the expansion feeling delicate.
Federal policymakers now face the task of assessing whether current borrowing costs can extinguish inflation without stalling the job market, with additional economic updates scheduled before their December meeting.
