The U.S. economy showed resilience during the third quarter, though the picture was not entirely positive. Hiring slowed sharply, while consumer spending picked up. At the same time, the U.S.-Iran conflict drove fuel prices higher and kept inflation elevated. In September, the Federal Reserve raised rates for the first time since 2023.
Stocks ended the quarter modestly higher, even as the 10-year Treasury yield reached its highest level since 2007. That raised borrowing costs and tested the lofty valuations behind the AI rally. For clients working through retirement planning and other financial decisions, the quarter underscored the value of reviewing developments in the broader economy with a financial advisor.
Quarter-End Results for Major Stock Indexes
Major U.S. stock indexes produced mixed results during the quarter:
- The S&P 500 climbed 2.03%.
- The Nasdaq 100 edged up 0.44%.
- The Dow Jones Industrial Average slid 2.70%.
These results came as higher long-term Treasury yields raised borrowing costs and tested the valuations behind the AI rally.
Diesel Prices and the Economy
The U.S.-Iran conflict made diesel the quarter’s most telling price. Diesel powers the trucks, trains, ships, and farm equipment that keep the economy supplied, and late in the quarter, it topped $6 a gallon nationally for the first time. The surge reflected more than expensive crude. Ukrainian strikes on Russian refineries, Iranian attacks on tankers, and Moscow’s export ban sharply cut global diesel supply.
Unlike gasoline, diesel costs are built into nearly everything consumers buy. Businesses can absorb higher fuel bills only for so long before passing them on through freight charges, food prices, and delivery fees. Consumers kept spending, but they grew more anxious about prices, and the diesel spike may help explain why. Even households that never buy a gallon at the pump are paying for it at the checkout.
Energy Costs Kept Inflation Elevated
Energy costs kept inflation from cooling enough to satisfy the Fed under Chair Kevin Warsh. Set food and energy aside, and the picture looked steadier. Underlying price increases held roughly level for months, a sign that the broader economy was not overheating.
But with demand holding up and fuel costs still climbing, overall inflation remained well above the Fed’s 2% goal. By late summer, policymakers concluded that waiting carried more risk than acting.
The Federal Reserve’s September Rate Increase
At its September meeting, the Federal Reserve hiked rates for the first time in three years, moving the benchmark federal funds rate to 3.75%–4%. The hike itself was modest, but the signal behind it drew attention. Policymakers indicated that another increase could come before year-end and that rates would likely stay high through 2027.
Bond investors responded quickly, pushing long-term Treasury yields to levels not seen since 2007 and lifting borrowing costs across the economy.
For savers, this is welcome news. Money market funds, CDs, and short-term bonds now pay noticeably more. Borrowers are facing the opposite, as mortgages and car loans grow costlier.
Developments to Watch in the Fourth Quarter
The Fed’s late-October and early-December meetings are among the quarter’s biggest events, and monthly data releases will continue to offer insights into how inflation affects consumers.
For individuals and families in Newport, Oregon, clear client communications can be helpful when market and economic conditions change. Agate Financial Partners uses a relationship-focused approach to financial services, supported by organized client outreach and communication tools such as Redtail and Levitate, while maintaining attention to compliance.
The third quarter showed that a strong economy does not always make for an easy market. If you would like to review your portfolio, revisit your goals, or talk through a question related to retirement planning, contact the Agate Financial Partners team for personalized guidance and support.