The overall U.S. economy expanded more than expected in the third quarter, while inflation in the U.S. picked up in September, likely reinforcing expectations for a Federal Reserve interest rate increase in December. Gross domestic product increased by 3.4% during the July-September period, a rise from 2.2% in the second quarter and surpassing expectations of 3.2%. The GDP figure, a first estimate from the Bureau of Economic Analysis, is likely the last major economic indicator before next week’s all-important midterm elections.
Alongside the swift expansion of artificial intelligence infrastructure, robust consumer spending amid the energy price shock and stringent U.S. trade tariffs has supported growth. Although the Fed opted to leave rates unchanged after its October meeting on Wednesday, markets have predicted that policymakers will raise borrowing costs following their final gathering of the year on December 8-9. In theory, a rate rise can help the Fed put a lid on inflation and prevent the wider economy from overheating. Still, Fed Chair Kevin Warsh said Wednesday that it “isn’t the judgment of most of my colleagues” that the U.S. economy is running hot.
The personal consumption expenditures price index increased by 0.5% last month, consistent with forecasts. In August, the metric reported by the Commerce Department was 0.3%. In September, monthly expenditures on petrol and other energy products surged by 9.2%, a development that can be partially attributed to the ramifications of the ongoing U.S.-Israeli conflict concerning Iran. In the year leading up to September, PCE inflation increased by 3.6%, a rise from the 3.4% recorded in August, aligning with expectations.
Core PCE inflation, which omits the more volatile elements such as energy and food, increased by 0.3% on a month-on-month basis and 3.1% on a year-on-year basis. The Fed maintains a vigilant focus on the core PCE reading as it serves as a key indicator of inflationary pressures. “Today’s reports show an economy that is growing faster than expected but is still generating too much inflation for the Federal Reserve’s comfort,” said Chris Osmond.
