US GDP Grows 3.4% as September Inflation Accelerates

Stronger economic output and persistent price increases are complicating the Federal Reserve's policy decisions as the US economy enters the final quarter of 2026. Gross domestic product grew at a 3.4% annualized rate in the third quarter, according to Commerce Department data released Thursday, October 29, while September inflation remained above the central bank's 2% target.

The GDP expansion exceeded economists' 3.1% forecast and accelerated from the 2.2% growth recorded in the second quarter. It also surpassed the 2.5% annualized rate reported for the first quarter, indicating stronger overall economic activity during the latest three-month period.

The Commerce Department's inflation figures showed the personal consumption expenditures price index, the Federal Reserve's preferred inflation gauge, increased 0.5% in September on a seasonally adjusted monthly basis. The annual inflation rate reached 3.6%, while the core PCE index, which excludes food and energy, rose 0.3% for the month and 3.1% from a year earlier.

Both monthly readings for headline and core PCE matched expectations, while the annual headline rate came in 0.1 percentage point below the consensus forecast, according to CNBC. Nevertheless, inflation remained substantially above the Federal Reserve's target.

Consumer spending increased 0.5% during the reporting period, slightly below the 0.6% gain economists had expected. Personal income rose 0.2%, also missing the 0.3% forecast, according to the Commerce Department data.

Federal Reserve Chair Kevin Warsh said policymakers would assess incoming economic information before determining their next steps. Speaking Wednesday in Washington, D.C., he pointed to resilient domestic demand while acknowledging uncertainty surrounding international developments.

"Economic activity is expanding at a strong pace. While uncertainty remains, owing in part to geopolitical developments, domestic spending has been resilient," said Kevin Warsh, Federal Reserve chair.

Warsh has led the central bank since May and has repeatedly emphasized its responsibility to bring inflation lower. The latest economic reports provide policymakers with additional information about the balance between economic growth and price stability.

"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," said Kevin Warsh, Federal Reserve chair.

The Federal Reserve held its benchmark interest rate steady Wednesday at a range of 3.75% to 4%, following a quarter-percentage-point increase in September. That earlier adjustment was the first rate increase in three years, according to ABC News.

Elevated inflation has also contributed to concerns about borrowing costs. Rising yields on longer-term Treasury securities have put additional pressure on rates for mortgages and credit cards, potentially increasing financial strain on households.

Although hiring has continued to expand more slowly and unemployment has remained low by historical standards, further monetary tightening could weigh on economic activity and employment. Investment in artificial intelligence infrastructure, including chips and data centers, has also helped support growth as major US companies increase spending in the sector.

Warsh reiterated the central bank's commitment to controlling price increases while officials evaluate the latest data and broader economic conditions.

"It's our responsibility to get inflation down," said Kevin Warsh, Federal Reserve chair.

Markets are closely monitoring the possibility of another rate increase at the Federal Reserve's December meeting. ABC News reported that market pricing indicated an approximately 85% probability of a quarter-percentage-point increase, reflecting expectations that policymakers could respond to inflation that remains above target.