The American economy may be on the brink of an economic expansion that exceeds even the strong growth it is achieving today. New figures released on Thursday show that the United States (US) economy expanded at an annualised rate of 3.4% in the third quarter of 2026, beating expectations of 3.2% and accelerating from 2.2% in the preceding quarter. But the greater significance of these figures lies in what they reveal about the strength of the American private sector and the possibility that several political and geopolitical developments over the coming months could create the conditions for an even stronger economic performance in 2027.

America has achieved this growth despite considerable headwinds. Wars in Europe and the Middle East have disrupted international markets and driven up energy costs. The Trump administration’s tariffs have introduced friction into international trade, while relatively high interest rates have weighed on borrowing and investment. Yet American consumers have continued to spend, businesses have accelerated their capital investment, and economic growth has exceeded expectations. The question for investors is what becomes possible if some of those constraints begin to fall away.

The most revealing figure is not headline GDP growth but the 4.9% expansion in real final sales to private domestic purchasers, a measure of household consumption and private fixed investment. This accelerated from 4.6% in the preceding quarter, indicating that underlying private demand is growing faster than the economy as a whole. Consumer spending increased by 3.8%, maintaining its pace despite pressure on household finances. This is significant because consumer expenditure accounts for roughly two-thirds of American economic activity.

More striking is the expansion in business investment. Non-residential fixed investment increased by 12.7%, while investment in information-processing equipment surged by 37.4%. Much of this reflects the enormous capital being committed to artificial intelligence (AI), computing infrastructure, data centres, and associated technologies. This investment is already supporting economic growth, but its longer-term implications could be considerably greater. If these technologies deliver meaningful productivity improvements, American businesses could produce more output at lower cost, raising the economy’s potential growth rate. The immediate spending is already reflected in GDP, while many of the anticipated productivity benefits may still lie ahead.

There was also encouraging news on inflation. The annualised quarterly increase in the personal consumption expenditures price index slowed from 5.0% in the second quarter to 2.1% in the third, while the core measure moderated from 3.3% to 2.5%. Inflation has not been defeated, but the combination of accelerating growth and moderating quarterly price increases is precisely what investors would want to see. It raises the possibility that America could sustain stronger economic activity without generating a corresponding acceleration in inflation.

These figures establish the economic position from which America approaches four potentially consequential developments.

The first is the midterm elections on Tuesday. Whatever the outcome, Donald Trump will retain the presidency and substantial executive authority over foreign policy, trade negotiations, and regulatory administration. A divided Congress could constrain some of his policies, but would not necessarily prevent the administration from pursuing its broader international economic agenda. More importantly, the elections could encourage a more predictable approach to trade. Tariffs have imposed costs and uncertainty on businesses, but have not prevented strong economic growth. If political pressure after the elections reduces tariff-related friction and encourages more stable trade arrangements, investment confidence could improve further.

The second, potentially more consequential development, is the possibility of geopolitical settlements involving the world’s major powers. Attention is turning towards a possible meeting between Trump, Xi Jinping, and Vladimir Putin in China, potentially next month. Such a meeting remains unconfirmed, as does any prospect of a comprehensive settlement. Nevertheless, credible progress towards ending the wars in Ukraine and the Middle East could fundamentally alter market expectations. Reduced geopolitical risk would encourage investment, improve confidence in international trade, and potentially lower the costs associated with sanctions, shipping, and insurance. Markets would not necessarily require completed peace agreements before beginning to price in a more stable international environment.

The third consideration follows directly from the second. A sustained decline in Brent crude and diesel prices could provide substantial additional support to American growth. Energy costs affect manufacturing, agriculture, transport, construction, and distribution. Cheaper fuel would reduce business expenses, improve profit margins, and leave households with more disposable income. For an economy already expanding at 3.4%, the resulting stimulus could be considerable.

Crucially, cheaper energy could simultaneously strengthen economic activity and reduce inflationary pressure. Ordinarily, faster growth raises concerns that demand will exceed productive capacity, forcing the Federal Reserve to maintain higher interest rates. Lower energy costs, particularly if accompanied by productivity improvements, could offset some of that pressure. If underlying inflation continued moderating, the Federal Reserve could gain greater flexibility to reduce borrowing costs, creating an attractive combination of rising corporate earnings, stronger household purchasing power, and improving financial conditions.

The fourth consideration is longer-term political continuity. Investors committing capital to factories, energy infrastructure, and industrial projects make decisions whose consequences extend well beyond the present administration. The prospect of continued Republican control of the White House after the 2028 presidential election could increase confidence that policies favouring deregulation, domestic energy production, and fewer climate-related restrictions will remain in place. Avoiding a decisive Democratic wave in the midterms would not guarantee Republican victory in 2028, but could influence investor perceptions of that possibility. Businesses concerned about future regulatory and environmental constraints may consequently become more willing to undertake long-term investments.

Consider what these developments could mean together. An American economy entering 2027 with strong consumer demand, accelerating investment, and emerging productivity gains could receive an additional boost from lower energy prices, reduced trade uncertainty, and greater geopolitical stability. Lower operating costs would improve profitability, while moderating inflation could eventually allow borrowing costs to decline. These developments could reinforce one another, supporting an expansion that spreads beyond the technology companies currently driving much of America’s investment boom.

Manufacturers, industrial businesses, transport operators, construction companies, and smaller enterprises could all benefit. Such an expansion would broaden the foundations of American growth and reduce the dependence of financial markets on a relatively small group of technology giants.

There are risks. Consumer spending is partly supported by relatively low household savings, some of the GDP acceleration reflected inventory accumulation, and inflation could remain persistent. The AI investment boom may disappoint if anticipated productivity improvements fail to materialise. Elevated equity valuations, federal deficits, and high long-term bond yields could also constrain investment returns. Nor is there any guarantee that geopolitical negotiations will succeed or that energy prices will decline.

Nevertheless, the implications for international investors are considerable. If America continues attracting capital through stronger growth, improving productivity, and favourable returns, weaker-growing economies will face more intense competition for international investment.