The US economy expanded faster than expected in the third quarter, growing at an annualized rate of 3.4%, as resilient consumer spending and artificial intelligence investment supported economic activity despite rising inflation and energy costs linked to the Middle East conflict.
Thursday's Commerce Department report exceeded economists' forecasts of 3.2% growth and marked an acceleration from the second quarter's 2.2% expansion.
Consumer spending, which accounts for more than two-thirds of US economic activity, increased at a 3.8% annualized pace, matching the previous quarter's rate.
Spending on healthcare, food and accommodation remained robust despite inflationary pressures and higher gasoline prices.
Real final sales to private domestic purchasers, a measure combining consumer spending and fixed private investment, increased 4.9%, compared with 4.6% previously.
Government spending also rose, largely reflecting oil sales from the Strategic Petroleum Reserve, while higher imports partially offset economic gains.
Corporate investment in AI data centers and advanced technology equipment continued to underpin growth.
However, economists warned that substantial borrowing by technology companies and uncertainty surrounding returns on long-term AI projects could eventually weaken investment.
The stronger growth figures coincided with accelerating inflation, as the Personal Consumption Expenditures Index rose to 3.6% annually in September from 3.4% previously.
The Federal Reserve held its benchmark interest rate at 3.75%-4.00% on Wednesday, acknowledging persistent inflation while highlighting resilient domestic demand.
Economists increasingly anticipated another interest rate increase in December.
Despite economic expansion, consumer sentiment has deteriorated, reflecting household concerns about living costs and financial pressures.
Some households have reduced savings to sustain consumption, while gasoline prices above $4 per gallon have intensified concerns about future spending.
The figures arrive less than a week before US midterm elections that will determine control of Congress, amid record-low approval ratings for President Donald Trump.
Financial markets reacted cautiously, with modest declines in the two-year Treasury yield and dollar index, while stock futures edged higher.
The contrasting signals of robust growth and persistent inflation underscore the challenges facing policymakers.