US Q2 growth slows as inflation stays high

Real U.S. gross domestic product increased at a 1.5% annualized rate in the second quarter of 2026, covering the April–June period. The advance estimate shows the economy expanding at a slower and weaker-than-expected pace. Reports highlight that this outcome represents sluggish growth relative to prior momentum and to market expectations.

Several accounts note that the softer top-line figure reflects specific drags on activity rather than a broad-based collapse. Rising imports, cuts in federal government spending and a drawdown in business inventories all weighed on the measured pace of GDP growth in the quarter.

Beneath the modest headline, domestic demand appeared considerably stronger. A core measure of activity, described as final sales to private domestic purchasers or an analogous gauge, increased at about a 3.9% annualized rate in the second quarter. This measure strips out more volatile components and indicates that underlying private-sector demand remained robust.

Consumer spending was a key support for growth, with households continuing to spend despite higher borrowing costs. Business investment also contributed positively, with particular strength cited in areas linked to artificial intelligence. Together, these components helped offset the drag from government and inventory dynamics.

Inflation pressures persisted even as growth slowed. The personal consumption expenditures price index, the primary inflation gauge used in policy deliberations, rose about 3.7% year over year in June 2026. Excluding food and energy, core PCE increased around 3.3% over the same period.

Monthly data within the quarter showed limited price relief at times but did not bring annual inflation down to the Federal Reserve’s 2% objective. Both the headline and core PCE readings remained clearly above that target, underscoring the ongoing challenge of bringing inflation back to desired levels while preserving economic growth.

In the policy meeting immediately preceding the release of the GDP and inflation figures, the Federal Reserve kept its benchmark interest rate in a range of about 3.50% to 3.75%. The decision reflected a majority view that existing settings were appropriate given the available data at that time.

The vote, however, was not unanimous. Three regional Federal Reserve presidents dissented in favor of raising rates, citing concerns about persistent inflation. With Q2 growth slowing to 1.5% but core demand and inflation still firm, the new data present a mixed backdrop for future policy choices.