US economic growth surges in 3rd quarter, highest rate in two years
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US consumers spent big this holiday season, despite persistent inflation and rising unemployment.
PHOTO: BLOOMBERG
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- US GDP grew 4.3% in Q3, exceeding expectations of 3.2%, driven by consumer spending and exports. This marked the highest GDP in two years.
- Inflation rose to 3.4%, potentially influencing future Federal Reserve monetary policy decisions amidst job market concerns.
- AI investments boosted the economy, but S&P Global Ratings warns political uncertainty could dampen investment despite settled trade policy.
AI generated
WASHINGTON – US economic growth in the third quarter came in at 4.3 per cent on an annualised basis, easily topping expectations, according to Commerce Department data released on Dec 23.
The report, which also showed an acceleration in inflation, provides reassurance about the world’s largest economy after other recent data showing a weakening labour market
It comes as worries have moderated over President Donald Trump’s tariffs, and as large tech companies advance massive investments to build new artificial intelligence infrastructure.
The gross domestic product (GDP) report – delayed for nearly two months due to a government shutdown
The reading, an initial estimate expected to be updated in early 2026, marks the highest GDP in two years. Analysts had expected 3.2 per cent growth, according to consensus estimates from MarketWatch and Trading Economics.
The report also showed the price index for domestic purchases rose 3.4 per cent, a much higher inflation reading compared with 2 per cent in the second quarter.
The data suggest faster growth and higher inflation than markets had expected, potentially changing the calculus for upcoming US monetary policy decisions.
Other recent data has shown a weakening job market that has prompted the Federal Reserve to cut interest rates at the last three meetings, viewing the employment picture as its prime concern even as inflation has lingered above 2 per cent.
US stock futures fell following the GDP data, likely reflecting lower odds that the Fed will again cut in January.
“I think the implication is that with the GDP numbers being as strong as they are, that gives the Fed additional reason to be on hold at the January (Fed) meeting,” said CFRA Research’s Mr Sam Stovall.
While inflation remains well above the Fed’s 2 per cent target, Fed Chair Jerome Powell and other policymakers have described the weakening employment market as the greater concern at the moment.
The Fed’s median 2026 GDP forecast is 2.3 per cent, up from 1.7 per cent projected in 2025, according to a summary of the central bank’s outlook.
US stock futures fell following the GDP data, likely reflecting lower odds that the Federal Reserve will again cut interest rates in January.
PHOTO: BLOOMBERG
Ebbing tariff angst
The report reflects a much improved US macroeconomic outlook compared with earlier in 2025, when worries about Mr Trump’s aggressive trade policy changes weighed on sentiment.
But by the latter stages of 2025, Mr Trump’s administration had negotiated agreements with China and other major economies that prevented enactment of the most onerous tariffs.
Meanwhile, an AI investment boom by ChatGPT-maker OpenAI, Google and other tech giants continued to pick up momentum, keeping the US stock market near record levels.
A Dec 18 outlook piece from S&P Global Ratings said AI investment would likely buoy the economy but could be offset by political uncertainty under Mr Trump.
“US trade policy uncertainty has settled down, but not US policy drama overall,” S&P said.
“Statutory US tariff rates may not move much in 2026, but uncertainty around laws, norms, investment rules, military actions and geopolitics more generally will remain elevated,” S&P said. “This uncertainty will likely dampen investment and discretionary consumption.” AFP
