U.S. Growth Revised Up, Inflation Still Running Above Fed Target — Evening Brief – 01.22.26 

U.S. economic momentum in the third quarter was stronger than previously reported, reinforcing the view that growth remained resilient heading into the final months of 2025—even as inflation pressures continued to linger. 

Revised data released Thursday by the Bureau of Economic Analysis showed that Q3 GDP increased at a 4.4% annualized pace, up slightly from the prior estimate of 4.3% and above the 3.8% growth recorded in the second quarter. The revision replaced the third estimate originally scheduled for December, which was delayed due to the recent government shutdown. 

The modest upward revision was driven primarily by stronger-than-expected exports and business investment, partially offset by a downward adjustment to consumer spending. Imports were also revised higher, reflecting firm domestic demand. 

Consumer spending rose 3.5% in Q3, accelerating from a 2.5% pace in Q2. While the contribution of consumption to overall GDP growth was revised slightly lower, demand remained solid. Real final sales to private domestic purchasers, a key measure of underlying economic momentum that strips out inventories and trade, rose 2.9%, pointing to steady—but not overheating—domestic activity. 

Inflation metrics in the revised GDP report were unchanged. The core PCE price index, the Federal Reserve’s preferred inflation gauge, rose 2.9% in Q3, up from 2.6% in Q2 and still above the central bank’s 2% target. November data showed inflation holding steady, with core PCE up 2.8% year over year, suggesting price pressures remain sticky but contained. 

Household spending remained firm late in the quarter. Personal outlays increased 0.5% month over month in November, while personal income rose 0.3%. The personal saving rate, however, slipped to 3.5%, down from 3.7% in October and well below its 5.5% level earlier in the year—highlighting how consumers are increasingly drawing on savings to sustain spending. 

Looking ahead, the BEA will release its initial estimate of Q4 GDP on January 30. The Federal Reserve Bank of Atlanta’s GDPNow model currently projects growth near 5.4%, suggesting the economy entered 2026 with considerable momentum, even as inflation continues to complicate the outlook for monetary policy.