Key Highlights

  • The Bureau of Economic Analysis reported on October 29, 2026 that third quarter real GDP grew at a 3.4% annual rate in its advance estimate, up from 2.2% in the second quarter.
  • September headline PCE Inflation rose 0.5% on the month and 3.6% from a year earlier, up from 3.4% in August, while core PCE reached 3.1% year over year.
  • Real disposable Personal Income fell 0.3% in September as personal income rose 0.2% and spending rose 0.5%, pushing the saving rate to 3.8%.
  • Fed funds futures priced roughly a 76% chance of a December hike, a backdrop that matters for inflation-protected products such as iShares TIPS Bond ETF (NYSEARCA:TIP).

How Growth Reached 3.4%

The advance estimate showed investment, consumer spending and government spending all contributing, partly offset by lower exports and higher imports. Investment was led by private inventories and equipment, mainly computers and peripherals, which fits the AI buildout. Real final sales to private domestic purchasers, a gauge of underlying demand, grew 4.9% against 4.6% in the second quarter. Consumer spending rose in services such as health care and food services and in goods, mainly prescription drugs. Growth of 3.4% is an annualized rate, meaning the quarter grew about 0.8% on its own. The estimate will be revised on November 25.

Why Inflation Still Runs Hot

The PCE price index is the Fed's preferred inflation gauge. Quarterly, it rose 2.1% annualized in the third quarter, down from 5.0% in the second, and core rose 2.5% against 3.3%. Yet monthly data for September show headline up 0.5% and core up 0.3%, with year-over-year core edging up from 3.0% to 3.1%. The two views differ because a quarter smooths timing, while the latest month shows momentum. Energy prices and tariffs are common drivers, though the release itself does not isolate them, and the monthly pace of 0.5% is the number the Fed is likely to weigh most.

Fed Risk and What to Watch

The Fed held rates at 3.75% to 4.00% on October 28 by a 10 to 2 vote, after its September 16 increase, and officials have since signaled more hikes may be needed. For iShares TIPS Bond ETF (NYSEARCA:TIP) and other inflation-linked assets, higher inflation can raise payouts but higher rates can lower prices, so outcomes are mixed. Real Disposable Income falling while spending rises suggests households are drawing on savings, which is hard to sustain for long, and a rising saving rate could slow spending. Next catalysts are the November 6 jobs report, the next inflation report and the December 8 to 9 Fed meeting.

Where Things Stand

The economy can grow quickly and still suffer from high inflation because growth was led by AI-related investment and spending, while prices keep rising faster than the Fed wants. Real incomes fell in September, the saving rate dropped to 3.8% and Core Inflation is at 3.1%, so the Fed has reason to consider another hike. iShares TIPS Bond ETF (NYSEARCA:TIP) would be one way to follow inflation expectations, but a single quarter does not settle the path.