Dive Brief:
- The U.S. economy during the third quarter grew at a faster-than-forecast annual rate of 3.4% fueled by robust consumer spending and outlays on the build-out of artificial intelligence, the Bureau of Economic Analysis said Thursday.
- Non-residential fixed investment surged at a 12.7% annual rate while consumer spending rose at a 3.8% annual rate, matching the Q2 result, the BEA said. In other data aligned with strong growth, the personal consumption expenditures price index — a gauge of inflation — rose in September by 0.6%, or 3.6% on an annual basis, the BEA said.
- “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,” Chris Osmond, chief investment officer at Fifth Third Wealth Advisors, said in a note. “Upward pressure on yields could persist, particularly if markets increasingly price in another Fed rate hike,” he said.
Dive Insight:
The data on inflation and gross domestic product are the last major economic information available to voters before the midterm elections on Tuesday.
Half of Americans view the economy as “extremely important” and 37% consider the issue “very important,” Gallup said Thursday, citing an Oct. 1-19 survey.
Only healthcare rivals the economy as the top concern, with 50% of those polled calling it “extremely important” and 27% deeming the issue “very important,” Gallup said.
Many consumers do not see the fruits of strong economic growth.
Inflation has outpaced the Fed’s 2% target for more than five years and, for several months, has increased faster than household incomes, bolstering a public perception of waning buying power.
The BEA data highlight the problem of declining affordability. Personal income increased 0.2% last month, lagging inflation.
As a result, real disposable income in September fell 0.3% Meanwhile, the personal saving rate slumped to 3.8%, the lowest level since Oct. 2022.
Inflation, and the perception that the Trump administration is responsible for persistent price pressures, has put Republican lawmakers on the defensive.
“Today’s report confirms what working families already know: Inflation is too high, and President Trump is to blame,” Rep. Brendan Boyle, D-Pa., said Thursday. “Instead of keeping his promise to lower costs ‘on day one,’ he has done everything he can to make life more expensive.
“Working people across the country are struggling to make ends meet because of Trump’s tariff taxes, his health care cuts and his disastrous Iran war,” Boyle, the ranking member on the House Budget Committee, said in a statement.
The White House, heralding Thursday’s report on economic growth, offered a contrasting message.
“President Donald J. Trump’s America First agenda is delivering as promised: faster growth, historic levels of investment and an economy that continues to outperform the so-called ‘experts,’” the White House said.
The Fed looked past persistent above-target inflation on Wednesday and held the benchmark interest rate at a range between 3.75% and 4%.
Policymakers in a 10-2 vote decided to collect more data before considering whether to follow up their quarter-point tightening in September with a second increase in the federal funds rate, the Federal Open Market Committee said while pledging to “deliver price stability.”
The inflation and economic growth data released Thursday should make policymakers more inclined to tighten monetary policy, Osmond said.
The data likely make the FOMC’s “posture more hawkish because both growth and inflation came in too strong to support an extended pause,” he said.
The committee’s next scheduled meeting is Dec. 8-9.
