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

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, but remained 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 one 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 Fed on Wednesday chose to leave its benchmark interest rate unchanged for the fifth straight meeting. But three regional Fed presidents dissented, saying they wanted to raise rates to combat elevated inflation.Higher costs have frustrated Americans ahead of November’s midterm elections, which will determine whether Donald Trump’s Republicans keep full control of CongressThe US economy has proven surprisingly resilient in the face of the Iran war and the spike in energy prices it caused. The job market has bounced back this year from a lackluster 2025, giving consumers the wherewithal to spend. Employers are adding an average 92,000 jobs a month this year, compared with fewer than 10,000 a month in 2025 when high interest rates and Trump’s erratic use of tariffs discouraged businesses from hiring.Still, Americans remain frustrated over the high cost of living as inflation remains stubbornly stuck above the Federal Reserve’s 2% target.Thursday’s GDP report was the first of three commerce department estimates of second quarter economic growth.