The U.S. economy expanded at a seasonally adjusted annualized rate of 3.4% in the third quarter, beating the 3.1% estimate, the Commerce Department reported Thursday. Price increases accelerated in September, with the annual inflation rate at 3.6%, well above the Federal Reserve's 2% target.
The data comes a day after the Fed voted to keep its benchmark interest rate between 3.75% and 4%. Central bank officials said they can afford to evaluate incoming data before deciding on their next move. Fed Chairman Kevin Warsh said that “the period right in front of us is information rich.”
The personal consumption expenditures price index rose 0.5% in September on a seasonally adjusted basis, the largest monthly gain since March. Excluding food and energy, core PCE rose 0.3% on the month and 3.1% annually, figures the Fed regards as more indicative of long-term trends.
Consumer spending climbed 0.5% in September, slightly below the forecast 0.6% gain, while personal income edged up 0.2%, compared with an expected 0.3%. On a quarterly basis, PCE prices rose 2.1% (headline) and 2.5% (core), down from 5% and 3.3% in the second quarter.
Gross domestic product grew faster than its 2.2% pace in the second quarter. The Commerce Department reported gross private domestic investment soared 19.4%, led by a 20.9% surge in equipment spending and an 8.4% rise in intellectual property products. Real sales to private domestic purchasers, a proxy for underlying demand, rose 4.9%.
September’s price uptick was driven largely by a 9.2% jump in gasoline and other energy goods and a 5.4% rise in energy goods and services broadly. Services prices excluding energy and housing increased 0.4%, and housing costs rose 0.3%.
Initial jobless claims edged lower to a seasonally adjusted 194,000 for the week ended Oct. 24, below the 200,000 estimate and near levels last seen in the late 1960s.
“Net, net, economic growth is powering ahead despite the uncertainty of geopolitical risks and the damage posed to many sectors of the economy by higher energy costs,” said Chris Rupkey, chief economist at Fwdbonds. “The economy was thought to have been a lost cause during much of the current Administration’s time in office, but real GDP has bounced back above a 3 percent run rate in Q3 2026 for the first time in a year.”
Analysis
Why This Matters
- GDP growth above expectations suggests the economy is resilient despite high inflation and geopolitical headwinds.
- Persistent inflation above the Fed’s target may delay any rate cuts, keeping borrowing costs elevated for consumers and businesses.
- Strong investment in equipment and intellectual property, particularly related to artificial intelligence, points to potential productivity gains.
Background
The Federal Reserve targets an annual inflation rate of 2%. In the second quarter of 2026, U.S. GDP grew at 2.2%. The Fed’s benchmark interest rate currently sits between 3.75% and 4%. September’s inflation acceleration followed a previous quarterly slowdown: headline PCE rose 2.1% in Q3, down from 5% in Q2.
Key Perspectives
Fed Chairman Kevin Warsh: The central bank can afford to evaluate incoming data before deciding on its next move and called the period “information rich.”
Chris Rupkey, chief economist at Fwdbonds: Economic growth is “powering ahead despite the uncertainty of geopolitical risks and the damage posed to many sectors of the economy by higher energy costs,” noting that GDP returned above a 3% run rate for the first time in a year.
What to Watch
- The Fed’s next interest rate decision as more data arrives, particularly on inflation and employment.
- Energy price trends: September’s surge in gasoline and energy goods could spill into broader inflation if sustained.
- Consumer spending: a slight miss on the September forecast amid rising costs may signal weakening demand.
Checked
12 claims in this story checked against 1 source: 10 supported.
Show each claim
- SupportedU.S. GDP grew at a 3.4% annualized rate in the third quarter.US Top News and Analysis: “GDP increased at a seasonally adjusted annualized pace of 3.4%”
- SupportedThe GDP figure beat the 3.1% estimate.US Top News and Analysis: “better than the 3.1% estimate”
- SupportedThe annual inflation rate reached 3.6% in September, accelerating from the previous pace.US Top News and Analysis: “The pace of price increases stepped up in September, keeping inflation well above the Federal Reserve's target”
- Reports differThe Commerce Department reported the third-quarter GDP figure on Thursday.US Top News and Analysis: “according to Commerce Department reports Thursday”
- SupportedFed Chairman Kevin Warsh said, “the period right in front of us is information rich.”US Top News and Analysis: “"The period right in front of us is information rich. There is a lot that's happening in the world. My colleagues and I are keen to take notice of it," Fed Chairman Kevin Warsh said.”
- SupportedChris Rupkey said, “Net, net, economic growth is powering ahead despite the uncertainty of geopolitical risks and the damage posed to many sectors of the economy by higher energy costs.”US Top News and Analysis: “"Net, net, economic growth is powering ahead despite the uncertainty of geopolitical risks and the damage posed to many sectors of the economy by higher energy costs," said Chris Rupkey, chief economist at Fwdbonds.”
- SupportedChris Rupkey said the economy was thought to be a lost cause during much of the current Administration’s time in office, but GDP had bounced back above a 3% run rate in Q3 2026 for the first time in a year.US Top News and Analysis: “"The economy was thought to have been a lost cause during much of the current Administration's time in office, but real GDP has bounced back above a 3 percent run rate in Q3 2026 for the first time in a year."”
- SupportedThe Fed voted to keep its benchmark interest rate between 3.75% and 4%.US Top News and Analysis: “The reports come the day after the Fed voted to hold its benchmark interest rate in a range between 3.75%-4%.”
- Partly supportedGrowth was driven by investment in AI and equipment.US Top News and Analysis: “Economic growth has been driven by higher levels of investment during the artificial intelligence build-out, as well as high levels of consumer and government spending. Gross private domestic investment soared 19.4%, driven by a 20.9% surge in equipment spending”
- SupportedCore PCE rose 0.3% in September and 3.1% annually.US Top News and Analysis: “Excluding food and energy, the core PCE posted respective readings of 0.3% and 3.1%”
- SupportedInitial jobless claims were 194,000 for the week ended Oct. 24, below the 200,000 estimate and near levels last seen in the late 1960s.US Top News and Analysis: “Initial jobless claims edged lower to a seasonally adjusted 194,000 for the week ended Oct. 24, below the estimate for 200,000 and near levels last seen in the late 1960s.”
- SupportedThe monthly PCE increase was the largest since March.US Top News and Analysis: “The monthly increase was the largest monthly gain since March”
