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

Consumer spending remained resilient even as policymakers kept interest rates on hold The US economy expanded at a sluggish 1.5% pace from April through June as rising imports weighed on growth. But consumer spending rose. And the Federal Reserve’s favored measure of inflation grew more slowly last month despite remaining above the central bank’s 2% target. The commerce department reported on Thursday that growth in US gross domestic product (GDP) – the nation’s output of goods and services – decelerated from 2.1% in the first three months of 2026 and came in below economists’ expectations. The commerce department also said on Thursday that its personal consumption expenditures (PCE) price index, the measure of inflation favored by the Fed, rose 3.7% last month from June 2025 , down from a 4.1% year-over-year increase in May. Excluding volatile food and energy prices, so-called core consumer prices were up 3.3% from a year earlier, little changed from a 3.4% increase in May. The latest data paints a clearer picture of the effects the war in the Middle East has had on the economy after increasing energy prices and pushing inflation higher. The first GDP reading of this year captured