The final major economic report before the midterm elections tells two stories at once. The US economy expanded at a 3.4% annualized rate in the third quarter, according to the Commerce Department, its fastest pace in over a year and ahead of the 3.0% economists had projected. Business investment surged at a 12.7% annualized pace, and consumer spending — which accounts for more than two-thirds of GDP — held at a robust 3.8%.
The same batch of data, however, showed inflation moving the wrong way. The Personal Consumption Expenditures price index, the Federal Reserve'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% on the month to 3.1% annually. Rising gas prices, linked in part to a war-driven energy shock, helped push the headline number to a four-month high.
The reports landed a day after the Fed left interest rates unchanged, its final decision before voters head to the polls. The combination of strong growth and sticky inflation gives the central bank more room to raise rates — and economists widely expect it to do so at its December meeting. Inflation-adjusted after-tax income fell 0.3% in September, a reminder that for many households, paychecks are still losing ground to prices even as the headline economy hums.
Why it matters
This is the rare economic release that hands both political camps a talking point and gives neither a clean win. Strong growth undercuts recession warnings, but 3.6% inflation is exactly the kind of number voters feel at the gas pump and the grocery store — and feelings, not GDP tables, decide elections. For markets, the real signal is the Fed: an economy growing at 3.4% with inflation re-accelerating leaves little excuse to keep rates on hold in December, which means borrowing costs could stay higher for longer even as the economy looks healthy on paper.
Source: CNN — Last snapshot of the US economy before midterms shows stronger growth but higher inflation (October 29, 2026). Summary rewritten by VCTRIA.
