The U.S. economy expanded at a slower pace than anticipated during the second quarter, while inflation remained stubbornly above the Federal Reserve’s target, according to data released Thursday by the Commerce Department.
Gross domestic product grew at a 1.5% rate for the April through June period, according to seasonally adjusted figures from the Bureau of Economic Analysis. The result fell short of the 1.8% growth rate economists surveyed by Dow Jones had projected and marked a deceleration from the 2.1% increase recorded in the first quarter.
Despite the headline miss, key components of the economy showed resilience. Personal spending rose 2.1% after managing only a 0.4% gain in the first quarter, while final sales to private domestic purchasers, a measure of underlying demand, posted a robust 3.9% increase.
The weaker-than-expected top-line figure appeared to stem from declines in federal government spending, which fell 0.3%, and inventories, which dropped 0.7%. Gross private domestic investment edged up 0.5%, while exports also increased 0.5% and imports declined 1.5%.
Inflation Remains Elevated
A separate report showed the personal consumption expenditures price index, the Fed’s preferred inflation gauge, fell 0.1% in June on a seasonally adjusted basis, bringing the annual inflation rate to 3.7%. Both figures aligned with forecasts.
Core PCE, which excludes volatile food and energy prices, rose 0.1% for the month and stood at 3.3% annually. The monthly increase came in slightly below the 0.2% forecast, while the annual rate matched expectations. Most Fed officials view core inflation as a more reliable indicator of longer-term trends than the headline figure.
The inflation readings, while close to expectations, remain well above the Fed’s 2% target. According to the Commerce Department, inflation had been moderating heading into this year but accelerated after U.S. and Israeli attacks on Iran in late February triggered a surge in energy prices.
Energy goods and services prices tumbled 5.9% in June, helped by a temporary lull in Middle East hostilities that sent gasoline prices down 9.2%. Housing inflation also moderated, rising just 0.2%. Overall, goods prices declined 0.6% while services increased 0.1%.
On a quarterly basis, the PCE index surged 5.1% on a headline basis and 3.4% for core.
Fed Policy Complications
The economic data arrives one day after a divided Federal Reserve voted 9-3 to hold its benchmark interest rate in a range between 3.5% and 3.75%, where it has remained throughout the year. The three dissenting votes came from regional presidents who have voiced concerns about elevated prices and the central bank’s lack of progress toward its inflation mandate.
Stock market futures were positive following the report, while Treasury yields rose sharply.
Consumer Finances Under Pressure
Personal spending held steady in June, rising 0.3% in line with expectations. Personal income increased 0.2%, falling slightly short of the 0.3% estimate.
However, consumers dipped into savings to maintain spending levels. The personal savings rate declined to 2.7%, marking the lowest level in four years and suggesting households may face growing pressure to sustain consumption patterns if income growth doesn’t accelerate.
With inflation taking primary focus for Fed policymakers and labor market indicators having stabilized this year, officials worry that energy price pressures could spill over into the broader economy, further complicating the path toward achieving the central bank’s 2% inflation target.
Source: www.cnbc.com — https://www.cnbc.com/2026/07/30/us-economy-slowed-to-1point5percent-growth-rate-in-q2-june-core-inflation-at-3point3percent.html
This article is for informational purposes only and does not constitute financial, investment, tax, or legal advice. Do your own research and consult a licensed professional before making financial decisions.
