US economic growth sees surprise slowdown in second quarter amid inflation worries

The US economy experienced a notable slowdown in its second-quarter growth for 2026, expanding at an annual rate of 1.5%. This figure fell below both the 2.1% growth rate recorded in the first quarter and the expectations of economists. The Commerce Department's advance estimate, released on Thursday, July 30, 2026, indicated a deceleration influenced by factors such as a decrease in government spending and a moderation in the growth of investment and exports. Rising imports, particularly those related to the buildout of artificial intelligence infrastructure, also served as a drag on the overall Gross Domestic Product (GDP) performance.

Despite the overarching slowdown, consumer spending, a significant driver of the US economy, demonstrated an accelerated pace in the second quarter. This resilience in household expenditure provided some underlying support amidst the cooling economic growth.

Meanwhile, inflation, while showing some moderation, continued to remain above the Federal Reserve's target. The Personal Consumption Expenditures (PCE) price index, the Fed's preferred inflation gauge, rose at an annual rate of 3.7% in June, a decrease from 4.1% in May. Core PCE, which excludes volatile food and energy prices, also eased slightly to 3.3% in June. However, these figures, still above the central bank's 2% target, have led to ongoing discussions and internal divisions within the Federal Reserve regarding future interest rate adjustments. The conflict in the Middle East and its subsequent impact on energy costs were highlighted as contributors to both the economic slowdown and persistent inflationary pressures.