US economic growth sees surprise slowdown in second quarter
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- US GDP grew at a 1.5% annual rate in Q2, down from 2.1% in Q1 and below the ~2% analysts had forecast, per the Commerce Department
- Consumer spending jumped to 3.2% in Q2 (from 0.5% in Q1), fueled by purchases of light-duty trucks, furniture, and prescription drugs, and accounts for over two-thirds of US economic activity
- Federal Reserve held interest rates for a fifth straight time, with new Chairman Kevin Warsh warning there was no "magic wand" to tackle rising prices
- Brent crude hovered near $90/barrel with US gasoline prices back above $4/gallon, driven by Middle East conflict escalation
- PCE Price Index — the Fed's preferred inflation gauge — rose 3.7%, with overall prices up 3.5% year-over-year in June, above the Fed's 2% target for over five years
- Economists at Oxford Economics and Capital Economics argued the 1.5% figure undersold underlying US strength, noting investment outside AI was reviving while surging AI-related chip imports kept its growth contribution "modest"
Why it matters: The 1.5% headline masks a split economy: consumers are spending at a 3.2% clip while AI investment is surging, yet government spending, investment, and exports all contracted. With the Fed's preferred inflation gauge at 3.7% and oil pushing gas above $4/gallon, Warsh's Fed is stuck holding rates in a softening economy that economists say is fundamentally healthier than the top-line GDP number suggests.
