GDP Hits 3.4% as Inflation Sticks at 3.7% Ahead of Midterms

The U.S. economy is expanding at its fastest pace in three quarters, even as inflation remains well above the Federal Reserve's target.

Government data released on Thursday indicated that gross domestic product grew at an annualized rate of 3.4% for the three months ending in September. That figure accelerates from 2.2% in the first quarter and 2.5% in the second. Inflation, however, ran at an annual rate of 3.7% in September, the most recent month for which data is available. Prices are rising more than a full percentage point faster than the central bank's 2% goal. Wages began to lag behind these price increases in April, reducing household spending power.

President Donald Trump addressed the economic situation at a rally in Corinth, Mississippi, on Monday. He described the current environment as experiencing "unbelievable growth, the biggest growth in the history of our country." While acknowledging higher oil costs, he stated that the war with Iran was necessary to prevent the nation from acquiring a nuclear weapon. "I don't want to belittle it because it's a big thing but I thought the price of oil was going to go much, much higher and I was fully prepared to do it," Trump said.

Shoppers are feeling the pressure of higher prices. The average price for a gallon of regular unleaded gasoline reached $4.22 on Thursday, which is $1.19 more than the price from a year ago. Diesel fuel costs $6.33 per gallon, a year-over-year increase of $2.65. These figures come from AAA. A recent ABC News/Washington Post/Ipsos poll found that a majority of 71% of Americans now consider gasoline unaffordable, a sharp rise from the 28% who felt that way in February before the conflict with Iran began.

Consumer mood has dropped to historic lows. The University of Michigan's monthly survey, released last week, places consumer sentiment at the second-lowest level in its 74-year history. Respondents expect inflation to worsen over the next year. Despite the gloom, the labor market is adding workers. The Atlanta Federal Reserve analysis shows employers created an average of 68,000 jobs per month during the first nine months of the year. This pace is higher than the 10,000 monthly average recorded in 2025.

Monthly job gains have been volatile. The Bureau of Labor Statistics reported that employers added only 29,000 jobs in September. That number follows a surge of 133,000 new positions in August and a loss of 10,000 jobs in July. The annual unemployment rate has stayed at or below 4.4% since 2017, excluding the pandemic years of 2020 and 2021. Spending on artificial intelligence has also driven economic activity. A J.P. Morgan Asset Management study published last month found that the AI sector contributed an average of 0.56 percentage points to GDP growth in the first two quarters of the year. That sector accounted for more than 20% of total economic expansion. Consumer spending, which makes up about two-thirds of economic activity, rose 0.9% in August. That marked the fastest monthly increase since March.

Voters will have access to all official economic figures before the November 3 midterm elections. The federal government has released the major data points scheduled for the period. The economy is growing, but the cost of living remains a top concern for households trying to balance their budgets.