GDP rises but prices climb, leaving voters divided ahead of midterms

The U.S. economy is expanding, but the average American is still feeling the squeeze on prices. This tension sits at the center of the midterm elections as voters head to the polls on Tuesday.

The Commerce Department reported on Friday that inflation in September reached 3.6%, an increase from the previous month. That figure is also higher than the rate of inflation when President Donald Trump took office. Despite this price pressure, the Federal Reserve decided to keep short-term interest rates unchanged at its meeting this week.

Growth data tells a different story than the price tags on shelves. Gross domestic product grew at an annual rate of 3.4% during the third quarter, covering July, August, and September. That is a jump from the 2.2% growth rate recorded in the prior quarter.

Federal Reserve Chairman Kevin Warsh described the economic direction as positive. "The economy is strong," Warsh said. "The economy is pointing in the right direction." However, economists note that a large portion of this growth is fueled by heavy investment in artificial infrastructure, particularly data centers.

The labor market has not matched the pace of GDP growth. Employers added only 29,000 jobs in September. While the unemployment rate sits at 4.2%, most workers report feeling hesitant to leave their current positions because they doubt they can find similar employment elsewhere.

Mark Zandi, chief economist at Moody's Analytics, noted that hiring rates are "extraordinarily low" and inconsistent with a healthy labor market. This lack of competition for workers means there is little pressure on companies to raise pay. In September, consumer spending rose 2.5 times faster than wages.

The housing market remains difficult for buyers. The average rate for a 30-year fixed mortgage is approximately 7.25%. Zandi said he had hoped rates would stay near 6%, which would have helped stimulate sales. Instead, high rates are keeping many potential buyers on the sidelines. The housing sector has contributed negatively to GDP in eight of the last ten quarters.

Nearly two-thirds of Americans currently disapprove of the president's handling of the economy. Voters penalized Democrats for inflation in the 2024 cycle, and polls suggest they may turn that same scrutiny toward Republicans in this election. The October employment report is scheduled for release later this week, which could shift the narrative in the final days of the campaign.