US GDP hits 3.4% but PCE inflation at 3.6% leaves the Fed stuck

The US economy grew at a 3.4% annualized rate in the third quarter, the Commerce Department's advance estimate showed Thursday, beating economists' expectations of roughly 3.1% to 3.2% and accelerating from 2.2% in the second quarter.

Consumer spending rose 3.8%, matching the second quarter's pace and the strongest since the end of 2024. Business investment surged 12.7%, driven by the artificial intelligence build-out. Government spending also contributed. A decrease in exports and an increase in imports partly offset those gains.

The growth came alongside hotter prices. The Personal Consumption Expenditures index, the Federal Reserve's preferred inflation measure, rose 0.5% in September, pushing the annual rate to 3.6%, up from 3.4% a month earlier. Some other sources cite 3.7%.

That combination — above-trend growth and inflation moving further above the Fed's 2% target — leaves the central bank with little room to cut. The Federal Reserve held its benchmark rate steady at 3.75% to 4% at its October meeting. Chair Kevin Warsh declined to commit to future moves but said financial conditions were not tight.

The timing is politically charged. The data landed less than a week before midterm elections that will determine control of Congress. Strong headline growth gives the administration a messaging boost, but persistent price pressures cut against it. Consumer sentiment has remained downbeat even as spending data runs hot — a gap that has defined this expansion.

For markets, the read is caution. Warsh is keeping Wall Street guessing, and the data reinforces expectations that the Fed will not rush to ease.

What is clear: the economy is not slowing into the election. Neither is inflation.