The US economy grew faster than expected in the third quarter of 2026, supported by consumer spending and business investment in AI. US consumers continue to demonstrate their resiliency despite elevated inflationary pressures, which showed more signs of persisting in September as the personal consumption expenditure price index (PCE) accelerated.

• The US Bureau of Economic Analysis reported that US gross domestic product (GDP) grew at an annualized rate of 3.4% in the third quarter in its advanced estimate. Third-quarter growth was up from 2.2% in the second quarter and above the 3.2% economists had expected, based on a Bloomberg survey.
• US consumers kept spending despite higher prices. Household spending, which makes up about two-thirds of the US economy, rose at an annualized rate of 3.8% despite higher oil prices linked to the conflict in the Middle East.
• Business investment in AI was a key driver of growth over the quarter. Business spending on equipment and software added 1.16 percentage points to growth, the largest contribution since 2011, excluding the pandemic. Residential investment was a weak spot.
• Inflation remained stubbornly high in September. The PCE, which is the US Federal Reserve Board's (Fed) preferred inflation gauge, rose by 3.6% year-over-year in September, up from 3.4% in August. Core PCE, which excludes food and energy, rose by 3.1%, up from 3.0%.
• The Fed held its policy interest rate steady at 3.75%-4.00% on Wednesday, after raising it in September. Strong growth and inflation above target could prompt the Fed to think about another rate hike this year.

The US economy is showing resilience, driven by consumer and business spending. However, higher interest rates could clamp down on household and business spending. But for now, households are brushing aside concerns about inflation, while businesses continue to invest heavily in AI, expecting the investment to provide a strong return.

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