The U.S. economy showed resilience during the third quarter, though the picture was not entirely rosy. Hiring slowed sharply, while consumer spending picked up. At the same time, the U.S.-Iran conflict pushed fuel prices higher and kept inflation elevated. In September, the Federal Reserve raised rates for the first time since 2023.

Stocks finished the quarter modestly higher, even as the 10-year Treasury yield reached its highest level since 2007. Higher yields raised borrowing costs and tested the lofty valuations behind the AI rally.

The overview below examines how energy prices, inflation, and Federal Reserve policy shaped the quarter’s results.

Major U.S. Stock Indexes

• The S&P 500 climbed 2.03%.
• The Nasdaq 100 edged up 0.44%.
• The Dow Jones Industrial Average slid 2.70%.

Diesel Fuels 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 increase 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.

Inflation’s Energy Problem

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.

A Small Rate Increase, a Louder Message

At its September meeting, the Federal Reserve raised rates for the first time in three years, moving the benchmark federal funds rate to 3.75%-4%. The increase 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.

Key Fourth-Quarter Events

The Fed’s late-October and early-December meetings are among the quarter’s biggest events, and monthly data releases will continue to offer valuable insights into how inflation affects consumers.

The third quarter showed that a strong economy does not always make for an easy market. Command Wealth Management will follow these developments closely in the weeks ahead. If you would like to review your portfolio, revisit your goals, or talk through a question, consult our financial team for personalized guidance and support.