Treasury Yields Spike on Strong 4.3% Q3 GDP Surprise

The U.S. economy grew at a faster-than-expected 4.3% annualized rate in the third quarter, driven by a surge in consumer spending and government outlays. The Commerce Department's Bureau of Economic Analysis released the initial estimate on December 23, 2025, showing a significant acceleration from the 3.8% growth in the second quarter. The figure far exceeded economists' consensus forecast of 3.3% according to initial data.

Consumer spending, which accounts for the largest share of U.S. economic activity, rose at a 3.5% annual rate, up from 2.5% in the second quarter. Much of the growth came from a rush to purchase electric vehicles before tax credits expired at the end of September. However, motor vehicle sales declined in October and November, indicating a slowdown in this category according to business reports.

The data was delayed by a 43-day government shutdown earlier in the year and is now considered outdated in some respects. The Congressional Budget Office estimates the shutdown could reduce GDP by 1.0 to 2.0 percentage points in the fourth quarter, though most of the impact is expected to be recouped over time.

How Markets Reacted

Financial markets reacted swiftly to the strong GDP reading. Treasury yields jumped following the report, with the 2-year Treasury yield climbing to 3.52% and the 10-year yield rising to 4.18%. Stock futures, however, showed little immediate direction, with the S&P 500 and Nasdaq futures dipping slightly.

The data reinforced the robustness of the U.S. economy, despite growing concerns over affordability, inflation, and the impact of recent trade policies.

The Federal Reserve's upcoming policy decisions remain a key focus, especially after the recent 25 basis point rate cut. While the central bank stated its short-term Treasury purchases were for liquidity management, analysts are closely watching whether the strong GDP growth might influence further monetary policy shifts according to market analysis.

What Analysts Are Watching

Economists are also monitoring the K-shaped recovery, where higher-income households are driving spending amid rising costs for middle- and lower-income consumers. The stock market boom has boosted wealth for affluent Americans, while broader affordability issues, including tariffs and utility costs, continue to weigh on the less wealthy. This divide is not limited to households, with large corporations better positioned to absorb rising costs and invest in AI, while smaller businesses struggle according to economic reports.

Additionally, the fourth quarter outlook is clouded by the lingering effects of the government shutdown and the potential for renewed volatility in key sectors. Consumer confidence, as measured by the Conference Board, remains weak, with recent readings hitting some of the lowest levels since the height of the pandemic. This suggests that while Q3 GDP was strong, broader economic resilience remains untested according to market indicators.

Risks to the Outlook

The strong Q3 GDP figure does not eliminate concerns about the sustainability of the current economic expansion. Tariffs and inflation remain key challenges, with many analysts warning of potential bottlenecks in 2026. The Congressional Budget Office has warned that the GDP hit by the shutdown will be partially recovered, it is estimated that between $7 billion and $14 billion will not be regained.

On the global stage, India is also making headlines with ambitious growth projections. Indian Finance Minister Jyotiraditya Scindia recently stated that the country is on track to surpass Germany and become the world's third-largest economy by 2027 according to government projections. The U.S. must now contend with both domestic policy headwinds and an increasingly competitive global economic landscape.

The BEA will release an updated GDP estimate for the third quarter on January 22, 2026. This revision will provide further clarity on the strength of consumer spending and other key components of growth. For now, the data underscores the U.S. economy's resilience but also highlights the fragility of a recovery driven by higher-income households and corporate capital investment according to economic analysis.