AI investment surge lifts US GDP growth to 3.4% in third quarter

US gross domestic product grew at a 3.4% annualized rate in the third quarter of 2026, the Bureau of Economic Analysis said on 29 October. That beat the 3.1% consensus cited by CNBC and accelerated from 2.2% in the second quarter and 2.5% in the first. It was the fastest quarterly growth since 3.9% in the third quarter of 2025, driven by an AI investment surge and consumer spending.

The BEA, part of the Commerce Department, also published the September personal income and outlays release. It showed the PCE price index rose 0.5% in September, the largest monthly increase since March, and 3.6% from a year earlier, up from 3.4% in August. Core PCE rose 0.3% on the month and 3.1% year on year, about 110 basis points above the Fed's 2% target. Annual inflation has stayed above that target for 5 1/2 years. Stock futures fell and Treasury yields dropped after the releases.

Fed holds rates after September hike

The Fed held its benchmark rate at 3.75% to 4% on 28 October, a day before the data. That followed a quarter-point increase in September, the first rise in three years. Chair Kevin Warsh said the period ahead is "information rich" and that officials are "keen to take notice of it."

Mike Fratantoni, chief economist at the Mortgage Bankers Association, said persistently elevated inflation is "likely to keep the Fed on track to hike rates at future meetings." The MBA forecasts two more hikes over the next six months, which would lift the federal funds rate to 4% to 4.25%.

AI investment drives growth

Business investment rose 12.7%, the highest quarterly jump since the start of 2024, as companies built AI data centers. Capital spending by large computing companies is on track to approach $800 billion in 2026, according to a JP Morgan Asset Management analysis. Gross private domestic investment rose 19.4%, with equipment spending up 20.9% and intellectual property products up 8.4%. Consumer spending grew 3.8%, matching the second quarter and the strongest reading since late 2024. Real final sales to private domestic purchasers rose 4.9% after 4.6% in the second quarter.

Residential investment fell in the quarter, extending a drag on housing. Exports subtracted from growth and a sharp rise in imports further weighed on the total, the BEA said. Government consumption expenditures grew 5.3%.

September prices

The inflation report showed energy drove much of September's price move. Gasoline and other energy goods rose 9.2% in the month, and energy goods and services overall rose 5.4%. Services prices excluding energy and housing rose 0.4%, and housing costs rose 0.3%.

The personal saving rate fell to 3.8% in September from 4.1% in August. Nominal consumer spending rose 0.5%, just short of the 0.6% forecast, while inflation-adjusted spending was flat. Personal income rose 0.2%, below the 0.3% expected.

The same BEA release showed quarterly PCE inflation ran at 2.1% and core at 2.5%, down from 5.0% and 3.3% in the second quarter.

What happens next

The GDP release landed days before the 3 November 2026 midterm elections, where cost-of-living pressures have defined the campaign. The BEA will publish updated GDP figures during the weeks of Thanksgiving and Christmas. The New York Fed's Staff Nowcast points to 2.8% annualized growth in the fourth quarter of 2026, while S&P Global economists estimate 2.2%.