US Economy Grows 3.4% in Third Quarter Amid Inflation

The Bureau of Economic Analysis reported Thursday that the United States economy grew at an annualized rate of 3.4% in the third quarter, the fastest pace in one year. This acceleration from the second quarter's 2.2% growth exceeded economist projections and was driven by a 3.8% increase in consumer spending and a surge in business investment in artificial intelligence infrastructure, including chips and data centers. Federal spending also rose by 15.8%, though these gains were partially offset by a decline in exports and a contraction in residential investment due to high mortgage rates.

Despite the growth, inflation remains a primary concern. The Personal Consumption Expenditures price index rose to 3.6% year-on-year in September, well above the Federal Reserve's 2% target. Federal Reserve Chairman Kevin Warsh announced Wednesday that the central bank would hold benchmark interest rates steady between 3.75% and 4%, though he emphasized that it is the bank's responsibility to lower inflation. Market sentiment now suggests an 85% probability of a rate hike in December to curb sticky price pressures.

The economic data arrives shortly before midterm elections, highlighting a divide between macroeconomic strength and public sentiment. While President Donald Trump attributes the growth to his tax reforms and border taxes, critics and Democratic Senator Elizabeth Warren point to the high cost of living and war-driven energy shocks as drivers of voter frustration. Approval ratings for the president remain at record lows as households struggle with the affordability of gasoline, housing, and health care.