(TNND) — The U.S. economy grew at a robust 3.4% last quarter, the U.S. Bureau of Economic Analysis reported Thursday.
But another report showed inflation worsened last month, and both reports add fuel to the possibility of another Federal Reserve interest rate hike this year.
Third-quarter gross domestic product rose 3.4% on an annualized basis, beating expectations and the 2.5% and 2.2% growth recorded in the first and second quarters, respectively.
This would mark the largest GDP growth in a year, but it’s also subject to revisions. The figure released by the government was an “advance” estimate of GDP, with two more updates scheduled between now and late December.
Stephen Kates, an economic analyst and the principal at Clocktower Financial Consulting, said this might just be a preliminary GDP report, but it’s still a positive signal for the economy.
GDP, one of the main proxies of overall economic growth in the country, has averaged around 2.5% annually over the last 10 years. So, Kates said 3.4% would be a desirable level of economic growth.
He said a similar fourth quarter would mark a “nice trend” for the economy, giving it momentum heading into 2027.
“There’s certainly significant tailwinds from business investment, and the consumer’s hanging on,” Kates said.
GDP is the product of consumer spending, government spending, business investment, and net exports. Imports subtract from GDP.
Consumer spending is the biggest slice of the pie, but the biggest change last quarter was from business investment.
Kates said spending on artificial intelligence infrastructure is driving current business investment.
Also on Thursday, the Bureau of Economic Analysis released the September personal consumption expenditures price index. The PCE, and the core version that strips out volatile food and energy prices, are the Fed’s preferred measures of inflation.
September PCE accelerated to 3.6% on a year-over-year basis, marking hotter price inflation than the 3.4% seen each of the previous two months.
Core PCE came in at 3.1%.
“So, we’re rising,” he said. “And we saw a rise in CPI, saw a rise in PPI, we saw a rise now in PCE. Inflation is getting worse. We’re trending in the wrong direction. The Fed is going to have to reckon with that.”
FILE – Shoppers are seen at a department store on Oct. 14, 2026, in Miami. (Photo by Joe Raedle/Getty Images)
The Fed has a dual mandate of price stability and maximum employment. That means keeping inflation in check and Americans working.
The Fed policymakers increased their benchmark borrowing rate in September for the first time in over three years as a lever to tame inflation. They kept the rate unchanged at a meeting this week but will have another crack at it in December.
Kates said it wasn’t surprising to see the Fed stand pat this week, given the proximity to the midterm election. But he said the market is expecting another rate hike in December.
The GDP and inflation reports on Thursday didn’t do anything to dispel the expectation of another rate hike, Kates said.
“The labor market is fine, and growth is there,” he said. “So, how can they say that things are restrictive?”
