U.S. economy grows sluggishly at 1.5% as inflation stays stubbornly high

The U.S. economy expanded at a sluggish 1.5% annualized rate in the second quarter of 2026, decelerating from 2.1% in Q1 and falling short of economists’ forecasts. Consumer spending surged to a 3.2% pace—up from just 0.5% in the first quarter—driving roughly 70% of economic activity, while business investment excluding housing grew a robust 8.4%, boosted by AI-related spending. However, an 11.5% surge in imports shaved 1.5 percentage points off GDP growth, as shipments of computer chips and other AI-enabling goods flooded in. The Commerce Department’s closely watched personal consumption expenditures (PCE) price index rose 3.7% year over year in June, down slightly from 4.1% in May but still well above the Federal Reserve’s 2% target. Core PCE inflation, which strips out volatile food and energy prices, held steady at 3.3% year over year. The Fed left its benchmark interest rate unchanged for a fifth consecutive meeting on July 29, though three regional Fed presidents dissented, pushing for tighter policy to curb persistent inflation. The report underscores the dual pressures facing the economy: resilient consumer demand and business investment on one side, and stubborn inflation alongside rising import costs on the other. Despite a rebound in hiring—employers added an average 92,000 jobs per month in 2026, compared to fewer than 10,000 monthly in 2025—Americans continue to grapple with elevated living costs ahead of November’s midterm elections. The Q2 GDP estimate is the first of three from the Commerce Department, with revisions expected in the coming months.