The U.S. economy grew less than forecast in the third quarter and inflation unexpectedly cooled, highlighting why the Federal Reserve plans to keep pumping money into financial markets.

The revised 2.6 percent increase in gross domestic product compares with a 2.5 percent November estimate and was less than the median forecast of a 2.8 percent in a Bloomberg News survey, a Commerce Department report showed yesterday.

Consumer costs for goods and services, excluding food and fuel, climbed at the slowest pace since records began in 1959.

Growth hasn't been strong enough to cut unemployment or prevent prices from stagnating, evidence of what the central bank this month called "disappointingly slow" progress. The Fed's commitment to buy another $600 billion in Treasury notes, combined with additional government stimulus and an improving labor market may help accelerate household spending.

The lack of "inflation does remain the biggest downside risk to the U.S. economy," and growth "is not enough to move unemployment meaningfully," said Guy LeBas, a strategist at Janney Montgomery Scott Llc.

GDP projections ranged from gains of 2.5 percent to 3.3 percent, according to survey of 71 economists. Yesterday's report is the third and final for the quarter.

In the past two weeks economists have boosted forecasts for fourth-quarter growth after the government reported better- than-projected retail sales for November and the Obama administration reached a compromise with congressional Republicans to extend tax cuts put in place by former President George W. Bush.

JPMorgan Chase & Co. chief U.S. economist Michael Feroli on Dec. 14 revised his fourth-quarter growth estimate to 3.5 percent from a prior estimate of 2.5 percent. - Bloomberg News

Latest Videos