The U.S. economy expanded at a seasonally adjusted annualized rate of 3.4% in the third quarter of 2023, according to preliminary data released Thursday by the Commerce Department. The growth rate exceeded expectations, surpassing the 2.2% pace recorded in the second quarter and marking the strongest performance since the first quarter of 2022.
The Bureau of Economic Analysis also reported that the personal consumption expenditures (PCE) price index rose 0.5% in September, pushing the annual inflation rate to 3.6%. The core PCE index, which excludes food and energy, increased 0.3% monthly and 3.1% annually, aligning with consensus forecasts. The Federal Reserve targets a 2% inflation rate for price stability.
Federal Reserve Chair Kevin Warsh stated Thursday that policymakers are closely monitoring incoming economic data before determining their next steps. The central bank held its benchmark interest rate steady in a range of 3.75% to 4% following its most recent meeting. Warsh noted the "information-rich" period ahead, citing geopolitical developments and domestic spending trends.
Consumer spending, a key driver of economic activity, rose 0.5% in September, slightly below the forecasted 0.6% increase. Personal income grew by 0.2%, also falling short of the expected 0.3% gain. Meanwhile, initial jobless claims declined to 194,000 for the week ending October 24, the lowest level since the late 1960s, according to the Labor Department.
The rise in inflation has contributed to higher long-term Treasury yields, which have increased borrowing costs for loans such as mortgages and credit cards. Despite these pressures, the labor market remains tight, with hiring continuing at a steady pace and unemployment near historic lows.
Economic analysts highlight spending on artificial intelligence infrastructure as a notable contributor to third-quarter growth. Major corporations have invested heavily in AI-related technologies, including data centers and semiconductor chips, which have bolstered economic activity in recent months.
The Federal Reserve’s next policy decision is widely anticipated, with markets closely watching for signals on whether further rate hikes may be necessary to curb inflation while sustaining economic momentum.