U.S. Growth Accelerates to 3.4% as Market Sees 85% Chance of December Rate Hike
Key Facts
The Federal Reserve held interest rates steady at its October meeting, while Chair Kevin Warsh offered no new guidance on the next decision. Warsh said policymakers would receive a substantial amount of data in the coming weeks, putting them “in a better position” to determine whether to raise rates in December. In its statement, the committee said holding rates steady would allow “more information to accumulate” before taking next steps. The statement described inflation as still elevated. After the meeting, investors put the probability of a December rate hike at about 85%, according to the CME FedWatch tool, as reported by the Associated Press.
The balance between waiting for data and inflation risks follows the Fed’s quarter-point rate hike in September, to about 3.9%, its first increase in 3 years. Federal Reserve board members Lisa Cook and Beth Hammack voted in October for another quarter-point increase instead of holding rates steady. But the majority’s decision left the rate unchanged, according to the Associated Press. The split on the board reflects differing views on whether policy needs to be tightened again. Warsh tied his assessment of a December move to what upcoming data show and did not announce a decision in advance.
On the activity side, U.S. real gross domestic product grew at an annual rate of 3.4% in the third quarter of 2026, compared with 2.2% in the second quarter, according to the Bureau of Economic Analysis’ advance estimate. Increases in investment, consumer spending and government spending contributed to growth, while a decline in exports offset some of that gain. The bureau said faster growth mainly reflected an acceleration in investment and a shift to an increase in government spending. The figures show an economy that grew at a faster pace in the third quarter. The second estimate of GDP and corporate profits is scheduled for release on November 25.
Price indicators offer mixed readings depending on the period and measure. The core personal consumption expenditures index, which excludes food and energy, rose at an annual rate of 2.5% in the third quarter, after 3.3% in the second quarter. The headline index slowed to 2.1% from 5.0% between the quarters, according to the Bureau of Economic Analysis. In monthly September data, the personal consumption expenditures index rose 3.6% year over year, while the core index increased 3.1%. This annual September reading differs from the third-quarter measure included in the GDP estimate.
In another price gauge, the core consumer price index rose 0.3% in September, matching the monthly increase recorded in August. Gasoline prices climbed 9.1% in September, accounting for more than half of the monthly increase in the headline index, according to the Bureau of Labor Statistics. The Associated Press attributed much of the inflation increase to higher gasoline prices, also pointing to faster increases in freight services, hotel rooms and utilities from August to September. In policymakers’ projections, the median forecast for 2026 inflation as measured by the personal consumption expenditures index was raised to 3.1% in the September projections, from 2.4% in the June projections. These figures put inflation at the forefront as price and activity data continue to be assessed.
Attention first turns to the Job Openings and Labor Turnover Survey, or JOLTS, due on November 3 at 10:00 a.m. Eastern time, covering September rather than October. The Bureau of Economic Analysis will then release its second estimate of third-quarter growth and corporate profits on November 25. The Federal Reserve’s next meeting is scheduled for December 8 and 9 and is associated with a Summary of Economic Projections. Warsh said data due in the coming weeks would help policymakers assess whether a rate hike is appropriate. Most economists expect another quarter-point increase at the December meeting, while the market-implied probability was about 85% after the October meeting, according to the Associated Press.