U.S. GDP slows to 1.5% as PCE inflation stays above Fed target
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- U.S. GDP grew 1.5% in Q2 2026 (April–June), decelerating from 2.1% in Q1, as rising imports dragged on growth — coming in below economist expectations
- Consumer spending rose even as overall output slowed, per Thursday's Commerce Department report
- The PCE price index — the Fed's favored inflation gauge — rose 3.7% year-over-year in June, down from 4.1% in May; core PCE was up 3.3% versus 3.4% in May, both still well above the central bank's 2% target
- The Federal Reserve held its benchmark interest rate unchanged for a fifth straight meeting on Wednesday, but three regional Fed presidents dissented in favor of hikes to combat elevated inflation
- U.S. employers added an average of 92,000 jobs per month in 2026, up sharply from fewer than 10,000 per month in 2025, reflecting a rebounding labor market
- The Commerce Department flagged that Thursday's GDP figure is the first of three estimates for the second quarter
Why it matters: With growth decelerating to 1.5% and core PCE still stuck at 3.3% — far above the Fed's 2% target — the central bank faces a stagflationary bind, and a rare three-dissent vote signals deepening internal splits over how to respond. Persistent cost-of-living frustration ahead of November's midterms gives Democrats an opening against Republicans who need to hold Congress.
