The US economy expanded at a sluggish 1.5% annual pace from April through June, according to the commerce department's first estimate of second-quarter gross domestic product (GDP). The figure marked a deceleration from 2.1% in the first quarter and came in below economists' expectations, as rising imports weighed on growth. Consumer spending, however, remained resilient.
Inflation remains above target
The Federal Reserve's preferred inflation gauge, the personal consumption expenditures (PCE) price index, rose 3.7% in June from a year earlier, down from 4.1% in May. Excluding volatile food and energy prices, core PCE increased 3.3%, little changed from 3.4% in May. Both readings remain above the central bank's 2% target.
The data reflect the economic impact of the war in the Middle East, which pushed energy prices higher. Oil prices, which had spiked during the conflict, declined after a US-Iran peace deal was announced but climbed again when the deal collapsed and strikes resumed. Prices remain well above prewar levels.
Fed holds rates steady amid dissent
The Fed on Wednesday kept its benchmark interest rate unchanged for the fifth consecutive meeting. However, three regional Fed presidents dissented, advocating for a rate hike to combat elevated inflation. This marked the first time in a decade that so many Fed officials dissented in the same direction on a policy vote. Fed Chair Kevin Warsh has acknowledged that inflation has remained too high for years.
Public frustration and economic resilience
Higher costs have frustrated Americans ahead of November's midterm elections, which will determine control of Congress. A Harris Poll survey earlier this month found that two-thirds of Americans, including 49% of Republicans, have little faith the federal government will address high prices. Despite this, the US economy has shown surprising resilience in the face of the Iran war and energy price spikes. The job market has rebounded in 2026, with employers adding an average of 92,000 jobs per month, compared with fewer than 10,000 monthly in 2025 when high interest rates and tariff uncertainty discouraged hiring.
Thursday's GDP report is the first of three commerce department estimates for second-quarter growth.
