Despite the volatile economic landscape, fueled by market and tariff uncertainty, lingering inflation and an evolving job landscape, U.S. gross domestic product (GDP) experienced an unexpected third-quarter jump, reaching approximately $31.1 trillion for Q3 2025.
The annual rate increase of 4.4%, indicating stronger growth than previous quarters of 2025, was bolstered by increases in consumer spending, a surge in exports and government spending as well.
For whatever reason, the third-quarter GDP surge was the best in two years and indicates the economy is on solid ground, despite persistent warning signs.
The Commerce Department’s Q3 report was delayed thanks to the government shutdown, but the 4.4% growth was significantly higher than both economists’ predictions of 3.2% and the second-quarter growth rate of 3.8%.
Consumption kept growing, particularly among the wealthy and upper-middle class, who continue to spend big. The thought remains that overall spending will continue to increase as the Republican tax cuts begin to take hold.
The jump in exports and increased military spending was key as well, as corporate profits leaped with some of the tariffs easing.
The Trump administration was quick to take a victory lap, as the president’s press secretary, Karoline Leavitt, proclaimed:
“The doubters, naysayers, panicans (sic), and liberal media have been proven wrong — again. Trust in Trump. The President’s pro-growth policies are working, and the best is yet to come.”
The president himself hawked the good news on his own Truth Social, writing:
“The SUCCESS is due to Good Government and TARIFFS!”
However, certain caveats remain, namely that business investment has slowed down, according to the latest data reports.
Also, consumer confidence dipped for the fifth month in a row, according to Bloomberg. The expectation is that growth will continue, albeit at a slower rate, in part due to reduced immigration.
More alarming was the inflation rate creeping back up to 2.9% from the previous 2.6%, an opposite trend from the Federal Reserve’s preferred rate of 2.0%.
If the labor market continues to cool while the economy holds strong, indicating a more “K-shaped” economy—where the top quintile of Americans spends big as others struggle with the cost of living—the fallout may not just be political, but could also increase the disconnect between how people feel and the economy at large.
The economy’s expansion may well exceed expectations, but those gains have failed to reverse an uptick in jobless rates or produce strong payroll gains.
Additionally, on Tuesday, the Federal Reserve responded by standing firm on interest rates.
Following three consecutive rate cuts from September to December last year, the Fed kept the benchmark lending rate steady between 3.5% and 3.75% by a 10-2 vote.
The Fed has juggled the risks of more significant rate cuts for two years, as inflation slowed in both 2023 and 2024, while remaining above the Fed’s preferred inflation rate of 2.0%.
With the rate creeping back up to 2.9%, the board decided to refrain from further cuts at this time.
As dissenting voices on the Board of Governors increase, the longstanding expectation that the board operates in a largely consensus-driven manner becomes more questionable.
Rather than project consensus, governors are reportedly becoming more entrenched in their views, especially since the December meeting was one of the most divided in years.
As for future cuts, that will depend on what materializes first—a job market that declines or an inflation rate that continues to fall toward 2%. Neither has happened since December.
Though job growth has slowed sharply, the unemployment rate has stabilized, while inflation readings have been clouded by data-collection disruptions stemming from the shutdown.
Some officials, including Chairman Jerome Powell, have indicated more comfort regarding the presumed spike in tariff-driven price increases—the expectation is that those may be one-time effects.
Others continue to be uneasy because inflation has remained well above 2% for five years.
Some officials worry rates may no longer be high enough to keep pushing inflation down, while others fear holding steady risks weakening the job market.
