Third-quarter U.S. GDP increases a better-than-expected 3.4% as September inflation accelerates

The pace of price increases stepped up in September, keeping inflation well above the Federal Reserve's target, while the economy grew faster than expected in the third quarter, according to Commerce Department reports Thursday.

The personal consumption expenditures price index increased a seasonally adjusted 0.5% for the month, putting the annual inflation rate at 3.6%.The monthly increase was in line with the Dow Jones consensus, while the annual rate was 0.1 percentage point below.

Excluding food and energy, core PCE posted respective readings of 0.3% and 3.1%, in line with the consensus. While the Fed follows both measures closely, officials generally see the core reading as more indicative of longer-term inflation trends.

While inflation continued to run ahead of the Fed's 2% target, the Commerce Department also reported that gross domestic product was strong in the third quarter.

GDP increased at a seasonally adjusted annualized pace of 3.4%, better than the 3.1% estimate and well ahead of the 2.2% in the second quarter.

Also, consumer spending proved resilient, increasing 0.5% a bit below the forecast for a 0.6% gain, while personal income rose 0.2%, compared to the forecast for 0.3%.

The reports come the day after the Fed voted to hold its benchmark interest rate in a range between 3.75%-4%. Despite elevated inflation readings, central bank officials insist they can afford to evaluate incoming data before deciding on their next move.

"The period right in front of us is information rich. There is a lot that's happening in the world. My colleagues and I are keen to take notice of it," Fed Chairman Kevin Warsh said.

However, the data deluge from Thursday shows the Fed could have more work to do.