Economy grows faster despite high inflation

The U.S. economy expanded at an annualized rate of 3.4% between July and September, according to a Commerce Department report released on Thursday. This marks an acceleration from the 2.2% pace recorded in the previous quarter. The data arrives just days before the midterm elections, a period when many voters report feeling pessimistic about their financial outlook.

Two main factors fueled the summer growth. First, artificial intelligence companies continued heavy investment in building data centers and developing new technology. Second, consumer spending remained strong, particularly among higher-income Americans who can better absorb the cost of goods. However, this spending has not been distributed evenly across all households.

Lower-income families continue to face pressure from inflation, which reached 3.6% in September compared to the same month last year. This rate exceeds the Federal Reserve's 2% target. Additionally, wage growth has not kept pace with rising prices, leaving many workers with less purchasing power than before. The personal saving rate fell to 3.8% in September, down from 4.1% in August.

Siri Steven, a manager at a resale store in Decorah, Iowa, described how her family is adjusting to these costs. She and her husband are delaying repairs on their house, which is more than 130 years old. "We barely go out to eat now," Steven said. "I really have to be mindful of our budget and make sure that we can pay all our bills and not overdraft." Her family is currently living paycheck to paycheck without setting aside savings.

The Federal Reserve held its benchmark interest rates steady on Wednesday. While the central bank did not raise rates this time, the inflation data from Thursday adds pressure for a potential increase at the December meeting. The Fed closely monitors these Commerce Department figures when making decisions about monetary policy.

Mark Zandi, chief economist at Moody's Analytics, cautioned that the strong GDP numbers mask underlying fragility. He noted that businesses and consumers are navigating around policies from the Trump Administration, including tariffs and the conflict with Iran. "We're growing," Zandi said. "The economy is moving forward but it's a very, very fragile growth. It doesn't feel like we're kicking it in on all cylinders."

The next major economic indicator is scheduled for release next month. The Federal Reserve will hold its next interest rate decision meeting in December.