ECONOMY BEATS EXPECTATIONS WITH 3.4% GROWTH: But Inflation Is Still Burning Hot

The U.S. economy grew faster than expected in the third quarter of 2026, according to new government data released Thursday, October 29. Gross domestic product expanded at a 3.4% inflation-adjusted annualized rate, beating forecasts and accelerating sharply from 2.2% growth in the second quarter.

The growth was driven by business investment, consumer spending, and government spending, and it marked the fastest pace in over a year. The report landed just a day after the Federal Reserve held its benchmark interest rate steady at 3.75% to 4%.

But the inflation picture was less encouraging. The personal consumption expenditures price index — the Fed's preferred inflation gauge — rose 0.5% in September from August, lifting the annual rate to 3.6% from 3.4%, well above the Fed's 2% target. Core PCE, which strips out volatile food and energy prices, rose 0.3% for the month and 3.1% over the year.

Rising gas prices helped push inflation to a four-month high, with reports pointing to a war-driven energy shock and other price pressures keeping inflation stubbornly elevated.

There was brighter news on jobs. Initial claims for unemployment benefits fell by 1,000 to 194,000 for the week ended October 24, near historic lows and below what economists had expected, reinforcing signs of labor market resilience. The data leaves the Fed in a tricky spot heading into its December decision: strong growth and low jobless claims argue against cutting rates, while inflation still running well above target keeps pressure on policymakers to stay tight.