US Economy Grew Faster Than Expected in Third Quarter, Expanding 3.4 Percent

The United States economy grew faster than expected in the third quarter of this year. A government report released on Thursday showed that gross domestic product (GDP) expanded at an annualized rate of 3.4 percent over the three months ending in September.

The reading from the US Commerce Department exceeded economists' expectations of 3.1 percent. The report marks the final snapshot of the economy before next Tuesday's midterm elections.

Growth in the third quarter was an acceleration from the 2.2 percent annualized GDP growth recorded in the previous quarter, and it also outpaced the 2.5 percent annualized rate recorded over the first three months of this year.

An uptick in consumer spending and an acceleration of investment were the primary causes of economic growth in the third quarter, the government report noted.

Consumer spending, which accounts for about two-thirds of US economic activity, rose at a solid pace in the third quarter, even amid a rise in prices, the data showed.

The report released on Thursday is an initial estimate, which the agency will revise over the coming months as it assesses additional data.

A jump in spending on artificial intelligence has helped boost the US economy in previous quarters, as many of the nation's largest companies poured funds into the chips and data centers needed to operate AI. On the other hand, AI likely pushed down this quarter's GDP figure, since tech firms imported large numbers of semiconductors critical to the technology, and the government's GDP formula subtracts imports to exclude foreign production from the calculation.

Economic growth this year has come amid a surge of inflation set off by the Iran war in late February.

In response to rising prices, a key long-term Treasury rate has jumped in recent months as investors feared price increases would eat away at their returns. The rise in bond yields has pushed up rates for loans such as credit cards and mortgages, threatening to worsen the financial crunch.

Still, the economy has proven resilient by some measures. Hiring has continued to grow, albeit at a slower pace, while unemployment has stayed at a low level by historical standards.

Speaking at a press conference in Washington, DC, on Wednesday, Federal Reserve Chair Kevin Warsh voiced optimism about US economic performance, even as he acknowledged the challenge posed by elevated inflation. 'Economic activity is expanding at a strong pace. While uncertainty remains, owing in part to geopolitical developments, domestic spending has been resilient,' Warsh said.

Prices increased 3.7 percent in September compared to a year earlier, putting the inflation rate more than a percentage point above the Fed's target of 2 percent, government data showed. 'It's our responsibility to get inflation down,' Warsh said on Wednesday.

The central bank raised interest rates by a quarter of a percentage point last month in an effort to battle rising prices, the first rate increase in three years. On Wednesday, the Fed opted to leave rates unchanged as it awaited further economic data. The odds of another quarter-point rate hike at the Fed's next meeting in December are pegged at about 85 percent, according to CME Group's FedWatch Tool. Another increase would mean pressing the brakes harder on the economy, risking sluggish growth and a further slowing of the job market.