US GDP Slows to 1.5% in Q2; Consumer Spending Jumps 3.2%
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- US GDP grew at a 1.5% annualized pace in Q2 2026, missing the 2.1% rate economists polled by Reuters had forecast (estimates ranged from 0.8% to 2.9%), with a widening trade deficit identified as the main drag on the headline number.
- Consumer spending surged at a 3.2% rate in Q2 after nearly stalling at 0.5% growth in Q1, supported by bigger tax refunds from Trump's "One Big Beautiful Bill," the recently ended FIFA World Cup, and higher-income households riding asset price gains.
- AI infrastructure investment showed no signs of slowing despite stretched tech valuations, helping prop up business equipment spending and overall domestic demand.
- The Federal Reserve held its benchmark rate in a 3.50%-3.75% range, with three policymakers dissenting in favor of a quarter-point hike and describing activity as "expanding at a solid pace despite elevated uncertainty" tied to the Middle East conflict.
- The US war with Iran, now in its sixth month, was flagged by economists as a downside risk to demand and growth in the second half of the year.
- Gasoline prices have climbed back above $4 per gallon amid renewed Middle East hostilities, with households already tapping savings and saving less to maintain spending as wages barely keep pace with inflation.
Why it matters: Three Fed members already want rate hikes despite the 1.5% GDP miss, while the Iran war — in its sixth month — is flagged as an H2 downside risk. With gas above $4 and households dipping into savings to sustain the 3.2% spending pace, the consumer-resilience story has a visible shelf life.
