U.S. economy grows at fastest pace in almost three years, third-quarter GDP shows

By Jeffry Bartash

AI revolution and 'wealth effect' fuel expansion

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The U.S. economy in the late summer and early fall ripped off its fastest rate of growth in almost three years, amped up by the boom in artificial intelligence and strong spending by wealthier Americans.

Gross domestic product, the official scorecard for the economy, expanded at a 3.4% annual pace in the third quarter running from July to September, the government said Thursday. Wall Street had forecast a 3.1% increase.

The economy has been turbocharged by massive spending on AI and all materials used to support an ongoing technological revolution.

High stock valuations and low unemployment, meanwhile, have bolstered spending among richer households while allowing Americans of more modest means to spend at levels adequate to undergird a six-year-old expansion.

The biggest weak spots in the economy are a sluggish pace of hiring and stubborn inflation tied to the conflict with Iran and higher oil prices. A separate report showed the rate of U.S. inflation rose X% in the 12 months ended in December, nearly double the Fed's 2% goal.

High inflation has already forced the Fed to raise interest rates once and it's likely to do so again in December, adding another obstacle for a resilient U.S. economy.

Looking ahead: The economy entered the fourth quarter with a heady dose of momentum. Economists predict growth will slow a bit, but not enough to cause any alarm.

The big question is what happens to inflation.

If the conflict with Iran worsens after the U.S. elections, prices could continue to rise. But if tensions simmer down, the economy would get another boost from falling energy prices just as winter approaches.

Market reaction: The Dow Jones Industrial Average DJIA and S&P 500 SPX were set to drop in Thursday trading.

-Jeffry Bartash

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10-29-26 0835ET