United States: growth accelerates sharply before the midterms, so does inflation

The insolent health of the American economy is something to rejoice in President Donald Trump before next week's mid-term elections, but the coin has another side: inflation. Two official data published Thursday paint a contrasting picture for the head of state who had promised a new golden age for Americans and a lower cost of living.

Growth in gross domestic product (GDP) accelerated sharply in the third quarter, to 3.4% at an annualized rate, driven by investments and household consumption. Growth was 2.2% in the second quarter. The official statistical service BEA highlights the annualized rate which projects the development observed over three months over the entire year.

Such a performance gives a breath of fresh air to the presidential majority a few days before the mid-term legislative elections on November 3. According to polls, the Republican Party is in bad shape and could lose control of Congress. Americans have difficulty digesting the continued increase in the cost of living, panicked by the spectacular surge in prices at the pump which followed Donald Trump's launching of a war in the Middle East.

At the same time as the growth figures, another piece of data was published by the BEA statistical service, which was much less encouraging for those in power. It confirms that the rise in prices accelerated in September, to 3.6% over one year, according to the PCE inflation index, the preferred measure of the Federal Reserve (Fed).

The American central bank decided the day before to leave its key rates unchanged, after having raised them in September, while vowing not to abandon the fight against inflation. For analysts, the lack of relief on receipts makes this monetary status quo illogical, unless you want to avoid being suspected of playing into the hands of the opposition by raising rates just before the elections.

The electoral deadline “played no role” in the monetary decision, assured Fed President Kevin Warsh at a press conference. He also made it clear that inflation was the main, if not the only, problem of the American economy. He underlined how robust the activity was, supported by the “resilience” of consumption and investments in high technologies, first and foremost artificial intelligence.

Asked at a press conference whether it could be “overheating”, he replied that “this was not the opinion of most of his colleagues” monetary officials. “Productivity increases (...). Economic growth is therefore stronger, but that does not allow me to conclude that this growth is in some way the origin of inflation and that it complicates our task,” he added. The central bank is responsible for creating the conditions for full employment and limiting inflation to 2%, a target missed for more than five years.