At 4.9%, US third-quarter GDP grows at the fastest pace in two years

The U.S. economy grew at the fastest pace in nearly two years last quarter, fueled by a surge in consumer spending.

Gross domestic product accelerated to 4.9 percent on an annual basis, more than double the pace in the second quarter, according to the government’s preliminary estimate Thursday. The economy’s main growth driver – personal spending – rose 4 percent, also the highest since 2021.

A closely watched measure of underlying inflation, meanwhile, cooled to the slowest pace since 2020.

The world’s largest economy has held steady despite high prices and a rapid rise in borrowing costs, repeatedly exceeding forecasters’ expectations and allaying fears of a recession.

The main driver of that resilience is the continued strength of the labor market, which continues to drive household demand.

Looking ahead, the sustainability of economic momentum in the fourth quarter will help Federal Reserve officials determine whether to raise rates again. Many economists expect growth to slow in the final months of the year as borrowing costs limit purchases of expensive items and student loan payments resume.

But if demand remains robust, there is a risk that inflation will remain above the central bank’s 2 percent target and tighter monetary policy may be justified.

At next week’s meeting, policymakers are widely expected to leave the benchmark interest rate unchanged, with some pointing to the rapid rise in government borrowing costs as a reason for caution.

Earlier this week, the yield on ten-year government bonds rose above 5 percent for the first time in sixteen years.

“Given the uncertainties and risks, and how far we have come, the committee is proceeding cautiously,” Fed Chairman Jerome Powell said last week, referring to the central bank’s rate-setting Federal Open Market Committee.

So far, the data suggests that inflation continues to decline. The closely watched price index for personal consumption expenditure, which excludes food and energy costs, fell to 2.4 percent in the third quarter. Including the more volatile categories, the overall PCE price index rose 2.9 percent.