Consumer spending rose, with services such as healthcare outpacing more cautious outlays on goods and big‑ticket items like vehicles
The US economy’s strongest quarterly growth in two years sharpens the dilemma facing Federal Reserve officials as they weigh how soon – and how far – to cut interest rates in 2026.
A blockbuster 4.4% annualised gain in gross domestic product for the third quarter of 2025, driven largely by consumer spending, underlined an expansion that remains stubbornly resilient even as higher borrowing costs squeeze housing and credit‑sensitive sectors.
Consumer spending, which accounted for roughly 70% of US output, rose at about a mid‑3% pace, with services such as healthcare outpacing more cautious outlays on goods and big‑ticket items like vehicles.
Exports surged while imports declined, adding further momentum, and business investment excluding housing advanced at just over 3%, partly reflecting bets on artificial intelligence and productivity‑enhancing technology.
Behind the headline numbers, the labour market cooled sharply from the post‑pandemic surge. Employers added an average of 28,000 jobs a month from March – a fraction of the roughly 400,000 monthly pace seen during the 2021‑2023 rebound – even as unemployment hovered near 4.4%, a pattern many economists described as a “no‑hire, no‑fire” environment.
Fed officials entered their December 2025 meeting acknowledging that economic activity expanded at a moderate pace while job gains slowed and inflation, though lower, remained above target.
By that point, the central bank already cut interest rates for a third straight meeting, even as markets debated whether strong growth would force a pause.
For mortgage and housing professionals, the combination of rapid GDP growth and a slower jobs engine raise familiar questions about how quickly borrowing costs might fall – and how deep any relief would be.
Earlier this month, United Wholesale Mortgage chief executive Mat Ishbia said that it is now a buyer’s market with more houses for sale, less buyers, and predicted that with the new Fed chair… rates will be lower… and a lot of people will be able to refinance in 2026.
However, the strength of third‑quarter GDP suggests that rate cuts could come more slowly than many households and originators hoped, especially if consumer spending and AI‑linked investment stayed robust.
Even as the Fed moved gradually toward easier policy, a surprisingly powerful economy meant mortgage professionals could not bank on rapid, recession‑style rate relief.
Stay updated with the freshest mortgage news. Get exclusive interviews, breaking news, and industry events in your inbox, and always be the first to know by subscribing to our FREE daily newsletter.
