GROWTH EXPERIENCE: The U.S. roared to its strongest GDP growth in two years during the third quarter, beating expectations and showing that the economy remains on pretty solid ground overall despite persistent warning signs. By the numbers: The Commerce Department’s report, which had been delayed by the government shutdown, showed that gross domestic product grew 4.3 percent annually from July through September. That was significantly higher than both economists’ prediction of 3.2 percent, and the second-quarter rate of 3.8 percent. (Looking ahead to the end of the year, a new Mastercard report says holiday spending jumped 3.9 percent this year, per the NYT.) What’s working: Consumption kept growing in the third quarter, particularly powered by the wealthy and upper middle class, who are still spending big. Exports jumped, corporate profits leapt as some tariffs eased, and military spending rose. Consumer spending could be boosted again next year by Republicans’ tax cuts. All in all, this is another report showing an economy that has proved much more resilient in the face of President Donald Trump’s tariffs than economists had warned. Victory lap: “The doubters, naysayers, panicans, and liberal media have been proven wrong — again,” celebrated White House press secretary Karoline Leavitt. “Trust in Trump. The President’s pro-growth policies are working, and the best is yet to come!” On Truth Social, Trump wrote, “The SUCCESS is due to Good Government, and TARIFFS.” The caveats: Business investment slowed down, per the latest data. Experts foresee growth slowing, though remaining positive, in the fourth quarter and into next year, in part due to reduced immigration. And the Conference Board’s report out today showed consumer confidence dropping in December for the fifth month in a row, per Bloomberg. Affordability alarm: Today’s report also showed the Fed’s preferred inflation metric going in the wrong direction in the third quarter, rising from 2.6 percent to 2.9 percent. How it feels: It could be politically dicey for Trump if the U.S. economy holds strong while the labor market cools — and if the top quintile of Americans spend big while many others struggle with the cost of living, in what economists have called a K-shaped trajectory. “The great decoupling of jobs and growth will take some explaining to the American public,” wrote economist Joseph Brusuelas, looking ahead to 2026. “[T]he current distance between the underlying economy and how people feel about that economy,” former Council of Economic Advisers Chair Jared Bernstein told NYT’s Talmon Joseph Smith, “is uniquely large.” “Tuesday’s report is a sign that the White House is on its way toward meeting some of the lofty projections Trump’s allies had set,” POLITICO’s Sam Sutton writes. “But while the economy’s expansion has surpassed expectations in consecutive quarters, those gains have failed to reverse an uptick in the jobless rate or strong payroll gains.” Fed up: The strong GDP report could also make the Fed likelier to stop cutting interest rates, as it balances inflation against employment. That wouldn’t make Trump happy — but as WaPo’s Andrew Ackerman reports, the central bank has quietly maneuvered this year to opt for “strategic restraint over confrontation with the Trump administration.” Behind the scenes, Fed leaders chose to avoid certain fights over non-monetary Trump priorities, like shrinking the workforce, to try to preserve their independence on interest rates. Good Tuesday afternoon. Thanks for reading Playbook PM. Drop me a line at eokun@politico.com.
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