US economic growth slows in second quarter

Published July 30, 2026 at 4:03 PM UTC

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Key Points

U.S. economy grew at 1.5% annualized rate in Q2 2026, down from 2.1% in Q1.
Consumer spending accelerated to 3.2% annualized pace, driven by job market recovery and AI investments.
Federal Reserve maintained interest rates steady amid concerns over persistent inflation.
Economic outlook remains uncertain due to geopolitical tensions and energy price volatility.

Background History

The U.S. economy has experienced fluctuations in growth rates over the past year, with a notable slowdown in the fourth quarter of 2025, where GDP growth was revised down to 0.7% from an earlier estimate of 1.4%. This was influenced by factors such as a government shutdown and reduced consumer spending. The Federal Reserve has been actively monitoring inflation and economic growth, adjusting monetary policies to address these challenges.

The U.S. economy expanded at an annualized rate of 1.5% in the second quarter of 2026, marking a slowdown from the 2.1% growth observed in the first quarter. This deceleration was slightly below economists' expectations of 1.8% growth. The moderation in growth is attributed to several factors, including geopolitical tensions in the Middle East and a surge in energy prices. Despite these challenges, consumer spending and business investments, particularly in artificial intelligence (AI), remained robust. Consumer spending accelerated to a 3.2% annualized pace, up from 0.5% in the previous quarter, driven by a recovery in the job market and increased business investments in AI. Federal Reserve Chairman Kevin Warsh highlighted the economy's resilience and strong business investment, especially in AI. Additionally, inflation, as measured by the Federal Reserve's preferred gauge, eased in June due to a temporary stabilization in energy prices amid a pause in Middle East conflicts. However, core inflation, which excludes food and energy prices, remained elevated at 3.3%, above the Federal Reserve's long-term target of 2%. The Federal Reserve maintained interest rates steady, though internal dissent suggests growing concern about ongoing inflation. Looking ahead, the economic outlook remains uncertain, with potential risks from ongoing geopolitical tensions and energy price volatility. Policymakers and businesses will need to monitor these developments closely to navigate the evolving economic landscape.