US economic growth accelerates in third quarter

The US economy experienced an accelerated growth in the third quarter, surpassing predictions, according to the Commerce Department's Bureau of Economic Analysis. The Gross Domestic Product (GDP) expanded at a 3.4% annualized rate, exceeding the 3.2% forecast from economists surveyed by Reuters. The robust GDP growth was primarily fueled by resilient consumer spending and AI-driven business investments, which offset the effects of higher oil prices caused by the Middle East conflict.

This economic surge stands in stark contrast to the low approval ratings of President Donald Trump and declining consumer sentiment. The report was released just before the midterm elections, which will decide control of Congress. The economy's growth rate is significantly higher than what some Federal Reserve officials consider non-inflationary growth, around 2%.

The Federal Reserve maintained its benchmark interest rate within the 3.75%-4.00% range, hinting at potential rate hikes in December. Fed Chairman Kevin Warsh noted that while uncertainty remains due to geopolitical factors, domestic spending has remained resilient.

Despite the strong GDP growth, some economists question whether this robust figure accurately represents the economy, given the increasing dependence on AI-related spending. Investors are increasingly focused on the long-term, uncertain payoff of AI projects. Tech companies have heavily invested in AI, potentially posing a risk to equipment spending.

However, economists anticipated a subsequent slowdown in consumer spending, as households have been saving less and dipping into their savings to fund their spending. Despite gasoline prices staying above $4 a gallon due to the ongoing US-Israeli war with Iran, economists predicted a deceleration in consumer spending.