US economic growth braked sharply in the third quarter as businesses cut back on restocking warehouses to work off an inventory glut.

However, solid domestic demand could encourage the Federal Reserve to raise interest rates in December. 

US gross domestic product increased at a 1.5% annual rate after expanding at a 3.9% pace in the second quarter, the Commerce Department said today. 

The inventory drag, however, is likely to be temporary and economists expect growth to pick up in the fourth quarter given strong domestic fundamentals. 

The Fed last night described the US economy as expanding at a "moderate" pace and put a December rate hike on the table with a direct reference to its next policy meeting. 

The Fed has kept benchmark overnight interest rates near zero since December 2008. 

The US economy has struggled to sustain a faster pace of growth since the end of the 2007-2009 recession, with average yearly growth failing to break above 2.5%.

Economists had forecast GDP expanding at a 1.6% rate in the third quarter.

Today's figures show that consumer spending, which accounts for more than two-thirds of US economic activity, grew at a 3.2% rate after expanding at a 3.6% pace in the second quarter. 

A measure of private domestic demand, which excludes trade, inventories and government spending, rose at a sturdy 3.2% pace. 

Given a strong dollar, export growth decelerated in the third quarter. The drag was, however, offset by a slowdown in imports, leaving the impact from trade on GDP growth neutral. 

Ongoing spending cuts in the energy sector also undermined growth. A plunge in oil prices has prompted oil field companies like Schlumberger and Halliburton to slash investment. 

Investment on non-residential structures contracted at a 4% pace as spending on mining exploration, wells and shafts tumbled at a 46.9% rate. This category dropped at a 68% pace in the second quarter. 

Despite strong domestic demand, inflation retreated because of dollar strength and cheaper petrol.