U.S. Real GDP Growth Tests Fed Chair’s View That Economy Is Not Overheated

The Federal Reserve faces a harder balance between growth and inflation after U.S. real gross domestic product rose at a 3.4% annualized quarter-over-quarter pace in the third quarter, above market expectations.

Consumer spending increased 3.8%, while business investment in equipment climbed 20.9%. Strong consumption and company investment drove the above-forecast expansion as inflation pressures broadened. Economic activity showed no clear slowdown, even as markets continued to bet on a December rate hike.

A day before the figures were released, the Fed chair said he did not consider the economy overheated and did not want monetary policy tightened so much that it hindered growth. The combination of firm activity and broader inflation leaves policymakers with a more complex choice between supporting expansion and controlling prices.