The Bureau of Economic Analysis (BEA) reported on Thursday (29) that the U.S. economy grew at an annualized rate of 3.4% in the third quarter, while Money Times reports that the PCE, the Fed's preferred inflation gauge, has reached 3.6% over the past 12 months. Just a day after the Federal Reserve held interest rates steady, both figures reinforce the view that "higher-for-longer" borrowing costs in the U.S. may last longer than many expected.
Will the Fed Raise Rates in December?
That remains undecided, but part of the committee already voted for a hike. On Wednesday (28), according to InfoMoney, the Fed maintained its benchmark rate between 3.75% and 4% per year, matching market expectations. The vote, however, was ten in favor of holding with two dissents: governors Lisa Cook and Beth Hammack favored a 0.25 percentage point increase at this meeting.
According to Vitor Kayo, senior economist at Nomad, speaking to InfoMoney, the two dissenting votes show that a portion of the Fed already supports further tightening and raise the odds of a rate hike at the next meeting in December. The central bank's official rationale for holding rates was the need to gather more data before deciding. This division is not unprecedented; we previously covered internal disagreements in our analysis of the Fed minutes and the debate over high interest rates.
In other words, Wednesday's pause was temporary, and no single data point seals the December decision. The GDP and inflation releases this week simply weigh on the scale—starting with economic activity.
What Does GDP Show About the U.S. Economy?
It shows acceleration. The BEA reported that annualized third-quarter growth outpaced the second quarter by 1.2 percentage points.
The annualized rate measures how much GDP would grow in a year if the quarter's pace were maintained. Compared directly to the previous quarter without annualizing, the U.S. economy advanced 0.8% on a seasonally adjusted basis. This is a first reading, and initial figures are typically subject to revision.
According to Money Times' coverage of the BEA report, the primary drivers and detractors of the result were:
- Investments: private inventory accumulation and purchases of equipment, particularly computers and peripherals.
- Household consumption, across both services and goods: healthcare, food away from home, lodging, and prescription drugs.
- Government spending, which also increased.
- Falling exports and rising imports, which act as deductions in the GDP calculation and limited expansion.
Another detail is of primary interest to Fed watchers: real final sales to private domestic purchasers, which combine household consumption and private fixed investment, advanced at a 4.9% annualized rate following 4.6% in the second quarter. This metric excludes inventories, government spending, and foreign trade, thus offering a clearer view of direct private demand. It accelerated by 0.3 percentage points, outpacing headline GDP growth.
Purchases of computers and peripherals stood out among investments. How this type of spending ties into the artificial intelligence boom and inflation is a debate we previously explored in our analysis of the AI boom and U.S. interest rates. The GDP source does not make this connection; it merely lists the item. Consequently, the other side of the equation remains missing.
Why Does the Fed's Preferred Inflation Gauge Weigh So Heavily Now?
Because the PCE is the primary yardstick the Fed watches to make decisions, and it remains well above target. Money Times reports that the index accelerated to 3.6% over 12 months, sitting 1.6 percentage points above the central bank's 2% target. In September, the monthly reading was 0.5%. The sources available do not clearly separate headline and core figures for this monthly reading, so the 0.5% figure should be viewed as a sign of acceleration rather than an exact measure of either component.
This picture is reinforced by another price index cited by InfoMoney. The Consumer Price Index (CPI) accelerated from 3.4% to 3.7% over 12 months, driven by rising gasoline prices. September's jump had already reopened discussions about a rate hike, as we noted when U.S. inflation accelerated in September.
This is the consensus among fund managers and economists consulted by InfoMoney, who still anticipate rate hikes at upcoming meetings. Gustavo Sung, chief economist at Suno Research, summarized the rate hold:
“a tactical pause, not a shift in direction”Gustavo Sung, chief economist at Suno Research, speaking to InfoMoney
Sung adds that the Fed explicitly conditions its next move on incoming data without abandoning its tightening bias. This is why this week's GDP and PCE data command such close attention—they are precisely the data points driving the decision.
What Does This Mean for Your Money?
Higher interest rates for longer in the U.S. weigh on tech stocks while supporting long-term Treasuries. None of the sources recommend buying or selling; instead, the backdrop against which each asset operates has shifted through December.
In U.S. equities, strong activity and inflation data suggest the tightening cycle may not be over, putting pressure on tech stocks. The Nasdaq fell 1.39% during the session to 26,181.62 points. For the S&P 500, the effect reinforces a bearish outlook, as stretched valuations coexist poorly with prolonged high interest rates. Investors holding Brazilian Depositary Receipts (BDRs) or ETFs tracking these indexes feel this impact in unit prices.
In U.S. fixed income, the math is different. Maintaining high interest rates supports the attractiveness of long-term Treasuries, even though inflation data volatility impacts prices. Longer-dated bonds are most sensitive to pricing surprises; we highlighted this dynamic when 10-year Treasuries dropped following the CPI release. The TLT ETF, which represents long-term Treasuries, is the asset in our universe most closely tied to this debate.
What about Brazil? The sources for this report do not feature Brazilian data, so the analysis here is qualitative: elevated U.S. interest rates typically make the dollar more attractive and complicate the outlook for emerging market central banks. If you hold overseas portfolio exposure, short-term risk lies in tech equities; if you hold fixed income in reais, the effect arrives indirectly through foreign exchange rates and risk appetite.
What to Monitor Ahead of the December Meeting
Four key metrics will determine whether Wednesday's pause becomes a rate hike or remains a pause:
Upcoming PCE readings — the benchmark is the 2% target; as long as the 12-month figure stays near 3% and the monthly figure near 0.5%, the Fed has justification to tighten.
The 12-month CPI — currently at 3.7% following 3.4%; renewed acceleration, even if driven by gasoline, strengthens the camp pushing for higher rates.
The Fed vote tally — currently two votes for a hike versus ten for a hold; a third dissenting vote would alter the tone heading into December.
Private demand — real final sales to private domestic purchasers stand at an annualized 4.9%; a slowdown would undermine the strong-economy argument.
The bottom line is straightforward: the U.S. economy remains robust, PCE inflation stays far from its target, and the Fed signaled just before the activity data that it does not rule out resuming rate hikes. If nothing changes, Wednesday's pause should be viewed as an intermission rather than the end of the cycle, and investors should position their portfolios for higher-for-longer interest rates.