US economy grows 3.4% in the third quarter, beating forecasts, as PCE inflation speeds up

The US economy grew at a 3.4% annualised rate in the third quarter, Commerce Department data showed^2,6. That was an acceleration from 2.2% annualised growth in the previous quarter⁶. Economists polled before the release had forecast growth at a 3.2% pace³. The reading was faster than expected and the strongest in a year⁴.

Growth picked up steam on a surge in business investment and strong consumer spending, exceeding economists’ expectations¹. The results add to evidence that the economy remains on a solid footing despite tariffs and high energy prices¹.

Before the release, economists estimated that the trade shortfall subtracted at least 4 percentage points from growth last quarter, with AI-related investment and consumers likely blunting the drag⁵.

Why it matters to investors

Inflation moved the other way. The PCE measure, the inflation gauge targeted by the Federal Reserve, sped up in September¹⁰. The acceleration shows why elevated price increases hang over the central bank’s next moves¹⁰. The combination of strong growth and stubbornly high inflation poses a challenge to the administration⁹.

“The print shows an economy that’s performing pretty well under the surface,” said Andrew Husby, even as consumer sentiment remains depressed⁴. Economists also flagged that higher gasoline prices from the Middle East conflict could act as a curb on growth³.

Politics frame the release. The report was published less than a week before Tuesday’s midterm elections, which will determine control of Congress⁷. The strong growth figure comes as a boon to President Donald Trump, who has touted the strength of the economy⁹. House Ways and Means Chairman Smith cited the 3.4 percent annualised growth rate in a statement on the PCE and GDP reports, saying Republicans are fighting to lower prices⁸.

What to watch

For markets, the question is how the Fed weighs faster growth against faster inflation^9,10. A strong quarter driven by business investment and consumers¹ sits alongside an inflation gauge that is moving up, not down¹⁰.

Energy is the main risk named to the outlook. Higher gasoline prices tied to the Middle East conflict could curb the pace of growth³, and coverage of the report pointed to the war with Iran as a backdrop for American households².

The trade drag is the other swing factor. Economists estimated it took at least 4 percentage points off growth⁵, so the strength of investment linked to AI will determine how much of that gap is filled again^1,5.