The United States economy demonstrated remarkable resilience in the third quarter of 2025, posting its strongest growth in two years. A delayed report from the Bureau of Economic Analysis revealed that inflation-adjusted gross domestic product increased at a 4.3% annualized pace, surpassing most expectations.
Behind the Strong GDP Numbers
This robust expansion, which followed a 3.8% gain in the previous quarter, was primarily fueled by steadfast consumer and business spending. The report, originally scheduled for October 30 but postponed due to a government shutdown, indicates the economy maintained significant momentum through the middle of the year. A key factor was the rollback of the most punitive tariffs from the Trump administration, which helped calm trade policy headwinds.
Despite a noted softening in consumer spending as the year ended, the core growth engine remained powerful. Consumer spending advanced at a 3.5% annualized rate in the third quarter, driven by strong outlays on services like health care and international travel, though spending on motor vehicles declined.
Inflation and the Federal Reserve's Stance
The growth comes with ongoing inflation concerns. The Federal Reserve's preferred inflation gauge, the core personal consumption expenditures price index, rose 2.9% in the third quarter, remaining above the central bank's 2% target. This persistent inflation is influencing monetary policy.
Federal Reserve Chair Jerome Powell has pointed to supportive fiscal policy, significant investment in artificial intelligence data centers, and continued household consumption as reasons for an optimistic growth forecast for 2026. Consequently, policymakers project only one interest-rate cut in 2026, following three consecutive reductions to close out 2025.
Looking Ahead to 2026
Economists anticipate the recent government shutdown will dampen fourth-quarter growth. However, the outlook for 2026 is brighter. Analysts expect a modest rebound fueled by households receiving tax refunds and a potential Supreme Court ruling that could strike down sweeping global tariffs.
Ben Ayers, a senior economist at Nationwide, encapsulated the sentiment: "Despite some evidence of softer consumer spending in the fourth quarter, the floor for the economy is still strong. We are optimistic that the economy will accelerate in 2026." This view is echoed in the Fed's latest projections.
A separate report on consumer confidence in December showed a fifth consecutive monthly decline, reflecting ongoing public concern about inflation, tariffs, and politics. Nevertheless, the underlying economic data suggests a foundation of strength as the U.S. heads into the new year.
