US economy grows faster than expected but inflation rises to 3.7%

US economy grows faster than expected in report out just ahead of elections Growth is in sharp contrast to ​households’ assessment, reflected in ‌Trump’s record-low approval ratings

The US economy grew faster than expected in the third quarter as resilient consumer spending and AI -driven ⁠business investment more than ⁠offset the impact ​of higher oil prices stemming from the conflict in the Middle East .

Gross domestic product (GDP) increased at a 3.4% annualized rate last quarter, the commerce department’s ⁠bureau of economic analysis said in its advance estimate of the third quarter GDP on Thursday. Economists polled by Reuters had forecast GDP advancing at a 3.2% pace.

The strength in growth is in stark contrast to ​households’ downbeat assessment of the economy, reflected in ‌ Donald Trump ’s record-low approval ratings ‌and a sharp deterioration in consumer sentiment. The report was published less than a week before Tuesday’s midterm ‌elections, which will determine control of Congress.

The economy is expanding at a pace that is well above what some Federal Reserve officials regard as the non-inflationary growth rate of around 2%. The US central bank on Wednesday left its benchmark interest rate in the 3.75%-4% range while acknowledging that inflation “remains elevated”.

Economists expected the Fed to raise rates in December. The Fed chairman, Kevin Warsh, told reporters “economic activity is expanding ‌at a strong pace,” noting that “while uncertainty remains, owing in part to geopolitical developments, domestic spending has been resilient.”

Given the increasing dominance of AI-related spending, some economists said the ​strong GDP growth was probably not a true picture of the economy. Investors are increasingly focusing on the rising costs of long-term AI projects, in which the payoff is uncertain. Tech firms have borrowed huge sums over the past year for AI spending, a potential downside risk to equipment spending. Still, economists did expect ⁠this pillar of support to weaken, though a pullback in spending was likely.

Consumer spending, ​which accounts for more ​than two-thirds of the economy, increased at ​a 3.8% pace in the July-September quarter after growing at a 3.8% rate in ​the second quarter. Historically low ‌layoffs and moderate ​hiring are helping ​to underpin spending, though wage gains have at times lagged inflation.