US Economy Accelerates Despite Persistent Inflation

The United States economy expanded faster than expected in the third quarter of 2026, demonstrating resilience despite higher borrowing costs and mounting pressure on household budgets. Gross domestic product increased at an annualised rate of 3.4 per cent between July and September, compared with 2.2 per cent in the preceding quarter.

The figure exceeded the 3.1 per cent forecast in a Wall Street Journal survey of economists. Consumer spending and business investment helped sustain the expansion, with spending on artificial intelligence and data centre infrastructure emerging as important sources of demand. The performance suggests that corporate investment in new technology is increasingly influencing the wider economic cycle.

However, strong output has not translated into broad relief for households. Annual consumer price inflation reached 3.7 per cent in September, up from 2.4 per cent in February. Rising energy costs have been particularly difficult for lower-income consumers, while slower wage growth has reduced inflation-adjusted hourly earnings for six consecutive months. Hiring has also been subdued, with the economy adding only 29,000 jobs in September.

The contrast between headline growth and household experience highlights an important weakness in the expansion. Wealthier consumers have continued spending, supported in part by asset values, while more exposed households face pressure from food, fuel and financing costs. Businesses linked to housing are also struggling with expensive credit and rising input prices, even as investment related to artificial intelligence supports other parts of the economy.

The Federal Reserve left interest rates unchanged at its latest meeting. Chair Kevin Warsh acknowledged stronger growth and investment, while indicating that policymakers did not generally view the economy as overheating. Still, persistent inflation complicates any attempt to ease monetary conditions.

The next test is whether the United States can maintain growth without relying too heavily on technology investment and affluent consumers. Sustained expansion would be more convincing if hiring strengthened and real incomes recovered across a wider range of households.