U.S. economy slowed to 1.5% growth rate in Q2; June core inflation at 3.3%
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- U.S. GDP grew just 1.5% in Q2, below the 1.8% Dow Jones consensus and down from 2.1% in Q1, though the miss came from a 0.3% drop in federal spending and a 0.7% inventory decline rather than demand weakness.
- Core PCE inflation rose 0.1% month-over-month in June (vs. 0.2% expected), holding the annual rate at 3.3%, while headline PCE fell 0.1% for an annual 3.7% — both still well above the Fed's 2% target.
- The Federal Reserve voted 9-3 the day before to hold its benchmark rate at 3.5%–3.75%, with three regional Fed presidents dissenting over persistent price pressures and the failure to make progress on the inflation mandate.
- Personal spending rose 2.1% in Q2 (up from 0.4% in Q1) and final sales to private domestic purchasers jumped 3.9%, suggesting underlying demand stayed robust even as the headline GDP figure disappointed.
- The personal savings rate fell to 2.7% in June, the lowest in four years, as consumers dipped into savings to sustain 0.3% monthly spending growth.
- Energy prices tumbled 5.9% in June as a temporary Middle East cease-fire pushed gasoline down 9.2%, though quarterly PCE still surged 5.1% headline and 3.4% core after the February U.S.-Iran attack drove a sustained energy shock.
Why it matters: The GDP miss came from federal spending cuts and inventory drawdowns, not demand weakness — personal spending actually accelerated to 2.1%. With core PCE stuck at 3.3% and the savings rate at a four-year low of 2.7%, the Fed faces a stagflationary tension that keeps rate cuts on ice despite the headline slowdown.
