U.S. Economy Surges 4.3%, S&P 500 Hits Record High, But Fed Rate Cut Hopes Cool
The U.S. economy grew by 4.3% in Q3, sending the S&P 500 to a record high. However, the strong data is dampening hopes for an early Fed rate cut, increasing market uncertainty.
The U.S. economy is roaring, but investors are growing nervous. The Commerce Department reported that the economy expanded at a 4.3% annual rate in the third quarter of 2025, beating expectations and pushing the S&P 500 to a fresh record. This strength, fueled by resilient consumer spending, is creating a paradox: the better the economy does, the less likely the Federal Reserve is to cut interest rates in early 2026.
The Double-Edged Sword of Consumer Spending
Consumers were the driving force behind the impressive growth, with spending expanding 3.5% in the third quarter, up from 2.5% in the prior quarter. The momentum appears to have continued into the holidays. A preliminary report from Visa shows retail spending rose 4.2% this season. However, this spending spree is being financed partly by debt. According to LendingTree, 37% of Americans took on holiday debt, with the average amount rising to $1,223 from $1,181 last year.
Policy Shifts: Trade Tensions Ease, Debt Collections Resume
Investors are also watching policy moves from the Trump administration. The Office of the U.S. Trade Representative announced it will delay planned tariff hikes on Chinese semiconductors until June 2027, an 18-month reprieve that signals a desire to cool trade hostilities. Domestically, however, a potential headwind is forming. The Education Department plans to start garnishing the wages of defaulted student loan borrowers in early January, a move that could impact the spending power of more than 5 million people.
Big Tech's M&A Push
Despite the macroeconomic uncertainty, the tech sector isn't sitting still. Enterprise software giant ServiceNow announced its acquisition of cybersecurity startup Armis for $7.75 billion in cash. The deal is a strategic play to bolster its security capabilities in the AI era. This M&A activity, along with strong performance from names like Alphabet and Nvidia, has helped buoy the broader market.
Investors should monitor how unexpected economic strength influences the Fed's policy decisions. The performance of individual tech stocks does not guarantee the direction of the overall market.
This content is AI-generated based on source articles. While we strive for accuracy, errors may occur. We recommend verifying with the original source.
Related Articles
A surprising increase in US core capital goods orders and shipments for October 2025 signals robust business investment, potentially influencing the Federal Reserve's upcoming interest rate decisions.
President Donald Trump is set to name his pick to succeed Jerome Powell as Fed Chair. The decision will have massive implications for global financial markets and monetary policy.
US manufacturing production was unexpectedly flat at 0.0% in November, according to the Federal Reserve. Here's how high interest rates are impacting the economy and what it means for Fed policy.
The U.S. economy grew at a surprisingly strong 4.3% annual rate in Q3, the fastest in two years, driven by robust consumer spending. However, rising inflation raises questions about sustainability.
A surprising increase in US core capital goods orders and shipments for October 2025 signals robust business investment, potentially influencing the Federal Reserve's upcoming interest rate decisions.
President Donald Trump is set to name his pick to succeed Jerome Powell as Fed Chair. The decision will have massive implications for global financial markets and monetary policy.
US manufacturing production was unexpectedly flat at 0.0% in November, according to the Federal Reserve. Here's how high interest rates are impacting the economy and what it means for Fed policy.
The U.S. economy grew at a surprisingly strong 4.3% annual rate in Q3, the fastest in two years, driven by robust consumer spending. However, rising inflation raises questions about sustainability.