GDP grew at an annual 4.3% rate in 3Q25

Investment Analysis Clubs Macro Economic Trends and Risks
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https://www.wsj.com/economy/us-gdp-q3-2025-2026-6cbd079e?mod=WSJ_home_mediumtopper_pos_1

U.S. Economy Posts Robust Growth in Third Quarter

A long-delayed government report shows GDP grew at an annual 4.3% rate

By Chao Deng and Harriet Torry, The Wall Street Journal, Updated Dec. 23, 2025

…
Gross domestic product, the value of all goods and services produced across the economy, rose at a seasonally and inflation-adjusted 4.3% annual rate for the July through September quarter, the Commerce Department said in a shutdown-delayed report.

It was the highest growth rate in two years, and reflected robust spending by consumers on services like healthcare as well as spending on recreational vehicles. Growth picked up from 3.8% in the previous quarter, and beat the 3.2% forecast among economists polled by The Wall Street Journal…

The jobs market has weakened, with unemployment rising in November to 4.6%, the highest level in more than four years. Retail sales have decelerated even as upper-income households keep spending, and some retailers like Home Depot have reported downbeat earnings and projections… [end quote]

I wonder whether the Federal Reserve would have cut the fed funds rate in December if they had known this strong growth at the time.

The Atlanta Fed’s GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2025 was 3.5 percent on December 16…

The Cleveland Fed’s 4Q25 inflation forecast dropped suddenly but I don’t think I believe it due to the government shutdown and Trump’s threat of firing the head of the BLS if it reports something he doesn’t like. Even with the drop inflation is higher than the Fed’s target. Every data point in the Atlanta Fed’s Underlying Inflation Dashboard is at least 0.5% higher than the target. The entire panel is in the red.

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The options market shows no fed funds cut in January.

https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html

The Fed would be inconsistent with their mandate to cut the fed funds rate with inflation so high and the economy so strong.

Wendy

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  1. Makes those tariffs look good, eh? He told us they’d work

  2. How do we know any of the numbers are real?

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I will wait for the revisions. Then I will wait for the truth.

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I suspect they would. The Atlanta Fed’s GDPNow had been between 3.5 and 4% (robust growth) all of December. It was the Fed’s focus on the employment numbers that led to only one member not voting for a cut.

DB2

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Probably yes. They were more worried about employment this time than about inflation. I think the statement even hinted at that fact (but I’m too lazy to go look it up right now before breakfast). I think unemployment creeping up from 4.0% in January to 4.6% now spooked them a bit. Especially after they provided 150bps of rate cuts in the previous 14 months! So they figured, they would do another 25 bps “just in case”.

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Agreed - here’s the FOMC.

"The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. Uncertainty about the economic outlook remains elevated. The Committee is attentive to the risks to both sides of its dual mandate and judges that downside risks to employment rose in recent months.

In support of its goals and in light of the shift in the balance of risks, the Committee decided to lower the target range for the federal funds rate by 1/4 percentage point to 3-1/2 to 3‑3/4 percent. In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee is strongly committed to supporting maximum employment and returning inflation to its 2 percent objective."

They’re right to be worried - employment is looking pretty fugly!

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"This “want a job now” statistic is at its highest level since 2021. Back then, the reading coincided with opportunity and optimism: The U.S. job market had the fastest hiring rate in more than 20 years, and wage pressures were building, especially for lower-paid jobs.

Today’s entrants are not tempted by a red-hot labor market. This time, many are searching again because they have to.1"

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Some points by various commentators:

  • Productivity increase. An AI effect?
  • Imports were down 5%, exports up 9%
  • 2.5 million illegal aliens have left the country this year while the number of native-born employed has increased by 2.6 million. Has “black-market” labor shrunk considerably?

DB2

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