The US economy and its inflation data are sending the Federal Reserve different signals. Gross domestic product grew at a seasonally adjusted annualised pace of 3.4% in the third quarter, while the personal consumption expenditures price index rose 0.5% in September and left annual inflation at 3.6%.
The third quarter ran from July to September, following growth of 2.2% in the second quarter. The 3.4% pace beat Wall Street’s 3.1% forecast and marked the fastest growth in a year.
Consumer spending rose 3.8% during the quarter, matching the prior period. Gross private domestic investment climbed 19.4%, led by a 20.9% increase in equipment spending and an 8.4% rise in intellectual property products.
The boom in artificial intelligence and heavy spending by wealthier Americans helped lift growth. Real sales to private domestic purchasers increased 4.9% in the third quarter, compared with 4.6% in the second quarter.
September brought a softer monthly reading on household spending. Consumer spending increased 0.5%, below the forecast for a 0.6% gain, while personal income rose 0.2%, against an estimate of 0.3%.
Price pressures, however, accelerated during the month. The 0.5% rise in the PCE index was the largest since March, and gasoline and other energy goods rose 9.2% in September.
The annual PCE inflation rate was 0.1 percentage point below the Dow Jones consensus. The Federal Reserve’s target inflation rate is 2%. Core PCE rose 0.3% for the month and 3.1% annually, in line with consensus.
On a quarterly basis, headline PCE prices rose 2.1% and core prices rose 2.5% in Q3 2026, down from 5% and 3.3% respectively in the second quarter.
The labour market data also pointed to continued resilience. Initial jobless claims for the week ended Oct. 24 were a seasonally adjusted 194,000, below the estimate for 200,000.
The Federal Reserve is holding its benchmark interest rate in a range between 3.75%-4%. Its chairman, Kevin Warsh, said, “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.”
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