US economy grows sluggish 1.5% in second quarter as inflation tops Fed target

The US economy grew at a sluggish 1.5% annual rate in the second quarter, decelerating from 2.1% in the first quarter and falling below economists' expectations, according to the Commerce Department. This slowdown was partly due to rising imports, though consumer spending remained resilient. The Federal Reserve's preferred inflation measure, the PCE price index, rose 3.7% last month year-over-year, a decrease from May's 4.1% but still above the Fed's 2% target. Core consumer prices also remained elevated. Despite the Federal Reserve holding interest rates steady for the fifth consecutive meeting, three regional Fed presidents dissented, advocating for a rate hike to combat persistent inflation. The economic performance is occurring amidst ongoing concerns about high prices impacting Americans ahead of midterm elections.

US economic growth slowed to a 1.5% annualized rate in the second quarter, according to the Commerce Department's Bureau of Economic Analysis. This deceleration was partly due to a widening trade deficit. However, underlying economic strength was indicated by an acceleration in consumer spending and robust business investment in artificial intelligence infrastructure. Economists had forecast a higher growth rate of 2.1%. The advance estimate of second-quarter GDP was released on Thursday.

The U.S. economy grew at a sluggish 1.5% pace in the second quarter of 2026, decelerating from the previous quarter and falling short of economists' expectations, according to the Commerce Department. Rising imports significantly impacted this growth, although consumer spending increased. The Federal Reserve's preferred inflation measure, the PCE price index, showed a slower year-over-year increase of 3.7% in June, but remained above the Fed's 2% target. Despite this, the Federal Reserve kept its benchmark interest rate unchanged for the fifth consecutive meeting, though three regional Fed presidents dissented, advocating for a rate hike to combat persistent inflation. The resilient job market has supported consumer spending, but high living costs continue to frustrate Americans ahead of the midterm elections.

US government borrowing costs have reached their highest point since 2007 following the Federal Reserve's decision to maintain its key interest rate. This move, intended to combat rising inflation, has concerned investors about the US economy's ability to absorb price increases, exacerbated by renewed strikes on Iran. The Federal Reserve chair, Kevin Warsh, affirmed the central bank's commitment to tackling inflation. US stocks experienced a significant decline after the Fed's announcement. In parallel, the US military launched strikes on Iranian targets in response to an attack on American forces in Jordan, leading to a surge in oil prices. Separately, Dr. Anthony Fauci invoked the Fifth Amendment and declined to testify at a Senate hearing concerning the origins of Covid-19.

The Federal Reserve decided to keep interest rates unchanged on Wednesday, maintaining the benchmark rate between 3.50% and 3.75%. This decision raises questions about how Federal Reserve chief Kevin Warsh will achieve his goal of reducing inflation to the 2% target. Three out of twelve members of the Federal Open Market Committee dissented, advocating for a quarter-percentage-point increase. These three dissenting members, presidents of the Cleveland, Dallas, and Minneapolis Fed regional banks, had previously dissented in April, at that time favoring the removal of a promise for lower rates.

The US Federal Reserve has decided to hold interest rates steady at 350-375 basis points, citing elevated inflation. The central bank stated that this inflation is partly due to supply shocks, including increased energy prices, and that it is committed to achieving price stability. This decision comes amidst ongoing calls for rate cuts from President Donald Trump. While the majority voted to maintain current rates, three members favored a 25 basis point increase. New Chairman Kevin Warsh indicated that the committee is considering various economic shocks, including pandemic-related supply chain issues and military conflicts, when making policy decisions.

The US Federal Reserve decided to hold interest rates steady for the fifth time since December, despite President Trump's repeated calls for rate cuts. Cooler inflation data had previously eased expectations for a rate hike, but rising energy prices due to the US-Iran peace deal strengthened the case for an increase. The Federal Open Market Committee voted 9-3 to maintain the current rates, which range from 3.5% to 3.75%. Three dissenting members favored a quarter-percentage point increase. The Fed's new chair, Kevin Warsh, is introducing changes to the central bank's communication strategy.