US economy grows 3.4% as inflation climbs to 3.7% before midterms
The US economy grew faster than expected in the third quarter while inflation accelerated in September, according to commerce department data released on Thursday, less than a week before midterm elections that will decide control of Congress. Gross domestic product rose at a 3.4% annualized rate last quarter, the Bureau of Economic Analysis said in its advance estimate.
(See the reader poll and source context below).
What do the sources establish?
| Platform / Source | Core Stance / Quote | Engagement Metric | Timestamp |
|---|---|---|---|
| The Guardian | Reported context: the 3.4% annualized GDP advance estimate and the 3.2% Reuters poll the PCE and CPI inflation readings the Fed hold and the midterm timing the oil price and consumer sentiment context | Not recorded | |
| BBC News | Reported context: the 3.75%-4% hold and the September rise the Warsh quotes the 10-12 vote and the two dissents the December 8-9 next meeting | Not recorded |
The US economy grew faster than expected in the third quarter while inflation accelerated in September, according to commerce department data released on Thursday, less than a week before midterm elections that will decide control of Congress.
Gross domestic product rose at a 3.4% annualized rate last quarter, the Bureau of Economic Analysis said in its advance estimate. Economists polled by Reuters had forecast 3.2%, with estimates ranging from 1% to 4.2%. The growth came as resilient consumer spending and AI-driven business investment more than offset the effect of higher oil prices tied to the conflict in the Middle East.
Growth above the Fed's comfort level
The economy is expanding well above the roughly 2% rate that some Federal Reserve officials regard as non-inflationary. That combination, strong growth plus rising prices, is the awkward backdrop for the central bank's last meeting before the midterms.
New data from the personal consumption expenditures price index, the Fed's preferred inflation measure, showed prices rose 0.5% for the month in September and the annual rate climbed to 3.6%, up from 3.4% in August. Core inflation, which strips out volatile food and energy prices, rose to an annualized 3.1%. The consumer price index, released earlier in October, also showed inflation rising in September, from 3.4% in August to 3.7%.
The Fed holds, with two dissents
Despite the price data, the Federal Reserve left its benchmark rate in the 3.75% to 4% range on Wednesday. It was the last decision before the midterms and came after the central bank raised rates for the first time in three years at its September meeting.
"The overwhelming consensus, the overwhelming judgement, is that what we've done in this monetary medicine is starting to work some," Fed Chair Kevin Warsh said, referring to September's increase. He acknowledged that inflation remained too high but pointed to tightening credit conditions as a sign the economy was moving in the right direction. He said there was more data to come before the next meeting and declined to say where rates might go, telling reporters: "A lot of things can happen, so I'm not going to be able to share with you my musings."
The decision was not unanimous. Ten of the 12 committee members voted to hold, while Governor Lisa Cook and Cleveland Fed President Beth Hammack voted to raise rates to 4% to 4.25%. The next meeting is scheduled for December 8 and 9. Warsh described the economy as performing very strongly while acknowledging that inflation was still too high, a combination that leaves the committee arguing about direction rather than pace.
What the numbers say about households
The gap between the headline growth figure and how households feel is the political story. Consumer sentiment has deteriorated sharply, and the commerce department data landed against Trump's record-low approval ratings. Growth driven by investment and spending by wealthier households can coexist with the strain that shows up in sentiment surveys and in grocery prices.
The advance estimate is also a first look that will be revised twice, so the 3.4% figure can move. That divergence is why the inflation number matters more than the GDP beat for the election. A 3.7% annual CPI reading is not a crisis, but it is well above target, and it is the figure voters encounter at the till rather than in the national accounts.
What it means for rates and mortgages
An interest rate tells people and businesses what it costs to borrow, from credit cards to mortgages to business loans, and what they earn on savings. The Fed sets the target range for the federal funds rate, which banks use for overnight lending. With the rate held at 3.75% to 4%, borrowers see no immediate relief, and the two dissents signal that the committee is split on whether the next move is up.
Warsh said the committee wanted more information before changing rates again. The data between now and December will decide whether the next move is a hike or a hold, and the December meeting will be the first without an election in front of it.
What to watch
Three things matter next. The first is whether PCE inflation keeps climbing in the October data, which would make a December hike harder to avoid. The second is whether consumer spending holds up as credit conditions tighten. The third is the Fed's own communication: the two dissents give markets a clearer map of where the hawks sit. Oil prices tied to the Middle East conflict are the wildcard, because they feed both headline inflation and household sentiment.
For readers following the inflation thread, our coverage of the September jobs report revisions sets out the labour-market backdrop, and the Fed's survey of consumer finances shows how household balance sheets have changed. The UK energy price cap is a different country's version of the same problem: how fast wholesale prices reach household bills.
The confirmed facts are narrow: 3.4% annualized growth, PCE inflation at 3.6%, core at 3.1%, CPI at 3.7%, and a Fed hold at 3.75% to 4% with two dissents. Everything else, including what the Fed does in December, is a forecast.