The U.S. economy grew at an annualized rate of 3.4% in the third quarter of 2026, driven by strong consumer spending and investment in artificial intelligence (AI). This growth outpaced economists’ expectations of 3.2%, showcasing the resilience of household spending despite rising inflation and higher fuel prices, which continue to pose challenges as the midterm elections approach.
Consumer spending, which represents over two-thirds of the U.S. economy, increased at an annualized rate of 3.8% in the third quarter, maintaining the same pace as the previous quarter. This growth was supported by relatively low layoffs and sustained household spending, although these expenditures have increasingly relied on savings. Gasoline prices, now above $4 per gallon, have added financial pressure due to ongoing geopolitical tensions involving the United States, Israel, and Iran.
Despite the robust economic growth, inflation accelerated during this period. The Personal Consumption Expenditures (PCE) price index, preferred by the Federal Reserve as a measure of inflation, rose 0.5% in September, pushing the annual inflation rate to 3.6% from 3.4% in August. The Consumer Price Index (CPI) also indicated a rise in annual inflation, increasing to 3.7% in September from 3.4% in the previous month.
As inflation remains elevated, the Federal Reserve has kept its benchmark interest rate unchanged at 3.75%–4%. This decision reflects ongoing concerns about price pressures, which could influence future monetary policy. While higher interest rates can help control inflation, they also risk slowing economic growth and weakening the labor market.
Investment in AI continues to be a significant contributor to economic growth, although there are concerns about the high costs and uncertain returns of long-term AI projects. A potential slowdown in this area could undermine one of the economy’s key support pillars.
Amid these economic dynamics, consumer confidence has notably declined. Surveys reveal that public sentiment has dropped since February, with households increasingly worried about inflation, fuel costs, and grocery prices. These economic concerns have also contributed to declining approval ratings for President Donald Trump as the midterm elections draw near.
Overall, while the latest GDP figures point to a resilient economy, rising prices, pressure on household savings, and uncertainty over future investment decisions pose challenges to sustained growth in the months ahead.