U.S. Economy Grows 3.4% in Third Quarter as Bets on Rate Hike Build
Key Facts
U.S. real gross domestic product grew at an annual rate of 3.4% in the third quarter of 2026, following 2.2% growth in the second quarter, according to the U.S. Bureau of Economic Analysis’ advance estimate. The reading exceeded EL7’s forecast of 3.2% and topped the average economist forecast of 3% in a FactSet survey cited by The Associated Press. The bureau said economic activity expanded in July, August and September. The Federal Reserve described activity as expanding at a solid pace, with domestic spending remaining resilient and inflation elevated. The growth and inflation data strengthened the case for a rate hike in December, according to Reuters, after the Fed left its range unchanged the previous day.
The acceleration in output was driven by increases in investment, consumer spending and government spending, while a decline in exports limited growth, according to the Bureau of Economic Analysis. Imports also rose during the quarter, a separate component in the calculation of gross domestic product. Final sales to private domestic purchasers, a measure of private domestic demand, increased 4.9% in the third quarter, compared with a 4.6% gain in the second quarter. The measure provides a picture of private demand by excluding swings in inventories and government and foreign trade from the calculation of final sales. The bureau said the increase in investment mainly reflected higher investment in private inventories and equipment, with information processing equipment leading the rise in equipment.
Investment details showed notable strength in business spending on equipment: nonresidential business investment rose 12.7% in the third quarter, The Associated Press reported. Investment in information processing equipment increased 37.4%, consistent with the Bureau of Economic Analysis’ indication that this type of equipment led the rise in equipment investment. Household consumer spending grew at an annual rate of 3.8%, matching the pace recorded in the second quarter, the news agency reported. But the personal saving rate fell to 3.8% in September, its lowest level in four years, according to The Associated Press. The agency reported the decline in the context of strong consumer spending.
As economic activity accelerated, personal consumption expenditures inflation rose in September, an indicator monitored by the Fed. The headline index increased 0.5% from August and 3.6% from September last year, according to the Bureau of Economic Analysis. The core index, which excludes food and energy, rose 0.3% during the month and 3.1% year over year. For the quarter, the personal consumption expenditures price index increased at an annual rate of 2.1% in the third quarter, down from 5.0% in the second quarter. The gross domestic purchases price index also rose 3.0%, compared with a 5.6% increase in the previous quarter, according to the bureau’s data.
The growth and inflation figures followed the Federal Open Market Committee’s October 28 decision to keep its target range for the federal funds rate at 3.75% to 4.00%. The decision passed by a 10-to-2 vote, with Lisa Cook and Beth Hammack preferring to raise the range by a quarter of a percentage point. The split reflected disagreement within the committee over the appropriate level of rates, while the decision kept the target rate unchanged. In its statement, the committee said that “economic activity has been expanding at a solid pace” and that “domestic spending has remained resilient,” but added that “inflation remains elevated.” Reuters reported that the GDP and inflation data strengthened the case for a rate increase in December, while the central bank had kept its benchmark overnight rate in the same range the day before the GDP data were released.
Despite the GDP data exceeding expectations, Reuters reported that Wall Street stocks fell, the dollar declined against a basket of currencies, and U.S. Treasury yields dropped on the day the report was released. The agency did not specify the reasons for these moves in its report, but cited them as market reactions that day. These moves place the growth data in a context where assessments of economic strength intersect with the inflation trajectory and monetary policy expectations. Third-quarter growth was the fastest since the third quarter of 2025, Reuters reported, adding to the importance of balancing continued demand strength against rising prices. Quarterly price figures pointed to slower increases in the gross domestic purchases and personal consumption expenditures price indexes compared with the second quarter, while September’s annual data showed core inflation remained at 3.1%.
The second estimate of third-quarter gross domestic product and corporate profits is due on November 25, 2026, at 8:30 a.m. Eastern time, according to the Bureau of Economic Analysis. At the same time, the bureau will release its October personal income and outlays report, which includes new personal consumption expenditures data. The Federal Open Market Committee will then meet on December 8 and 9, according to the Federal Reserve’s calendar. These milestones come ahead of the next rate decision, after the October vote showed a split and the committee’s assessment that inflation remained elevated. The GDP revision and the next monthly price report will provide an updated picture of growth and inflation before the scheduled meeting.