US GDP Growth Beats Expectations as Inflation Rises to 3.6%

The US economy grew at a 3.4% annualized rate in the third quarter, exceeding economists’ expectations of 3.2%, while inflation accelerated to 3.6% in September, according to Commerce Department data released Thursday. The growth is attributed to resilient consumer spending and increased investment, particularly in artificial intelligence, offsetting the impact of rising oil prices. The pace of expansion is above the Federal Reserve’s estimated non-inflationary growth rate of around 2%.

The Personal Consumption Expenditures (PCE) price index, the Fed’s preferred measure of inflation, showed a 0.5% increase in September, bringing the annual rate to 3.6%, up from 3.4% in August. Core inflation, excluding food and energy, rose to 3.1%. The Consumer Price Index also indicated rising inflation, with the annual rate increasing from 3.4% to 3.7% in September. Despite this, the Federal Reserve held its benchmark interest rate in the 3.75%-4% range, citing a strong economic pace and acknowledging that inflation “remains elevated.” Economists anticipate a potential rate increase in December.

Consumer spending increased by 3.8% in the July-September quarter, maintaining the same pace as the second quarter. Gross private domestic investment surged by 19.4%, driven by a 20.9% increase in equipment spending and an 8.4% rise in intellectual property products. Initial jobless claims remained low, edging down to 194,000 for the week ending October 24, near levels not seen since the late 1960s. Some economists caution that the strong GDP growth may not fully reflect the economy’s health, given the increasing dominance of AI-related spending and the potential risks associated with tech firms’ borrowing for such projects. Investors are focusing on the costs of long-term AI projects, where payoffs are uncertain.

Left and center sources emphasize the continued high inflation despite economic growth, while noting the Fed’s cautious approach. No right-leaning outlet reported this story.

Where they differ

• CNBC reported the monthly increase in the PCE price index was the largest since March, while the Guardian did not highlight this specific detail.
• The Guardian noted a contrast between economic growth and households’ downbeat assessment, referencing Donald Trump’s approval ratings and consumer sentiment, which CNBC did not mention.
• CNBC included a quote from Chris Rupkey of Fwdbonds, framing the growth as a rebound after a period of economic hardship, a perspective not present in the Guardian’s reporting.

What is not yet known

• The long-term sustainability of the current economic growth rate, particularly given the reliance on AI investment, remains uncertain.
• The extent to which geopolitical developments will impact the US economy is not fully clarified.

Background

• The Personal Consumption Expenditures (PCE) price index is the Federal Reserve’s preferred measure of inflation [Fact Refinery, 2026-06-25].
• In May, annual inflation reached 4.1 percent, the highest level in more than three years [Fact Refinery, 2026-06-25].
• Oil prices surged to $110 per barrel in October, reaching a five-month high, concurrent with a fall in tech stock values [Fact Refinery, 2026-10-16].
• In September, U.S. inflation increased, driven by rising energy prices [Fact Refinery, 2026-10-14].

Our reading

Our reading is that the US economy presents a mixed picture. Growth is exceeding expectations, but this is happening alongside accelerating inflation, suggesting a potentially unsustainable trajectory. The Federal Reserve’s decision to hold rates despite rising inflation indicates a prioritization of maintaining economic momentum, even at the risk of further price increases. The divergence in reporting, with left/center sources focusing on inflation and right sources absent, highlights a partisan framing of these economic indicators.

What to watch

• The Consumer Price Index (CPI) data for October, due in mid-November, will indicate whether inflationary pressures are continuing to build [Bureau of Labor Statistics].
• The Federal Reserve’s December meeting, where a potential interest rate increase is anticipated, will reveal their response to the latest inflation and growth figures [Federal Reserve website].
• Future reports on AI-related investment and its contribution to GDP growth will clarify whether this sector is driving sustainable economic expansion or creating a bubble [Commerce Department data].

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