GDP Slows to 1.5% in Q2 as Iran War Lifts Gas Past $4
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- U.S. GDP grew at a 1.5% annualized rate in Q2 2026, below the 2.1% economists polled by Reuters had forecast and down from 2.1% growth in Q1.
- The Commerce Department tied the weakness to the Iran war's disruption of Strait of Hormuz shipping, which drove U.S. gas prices from $2.98/gallon pre-war to over $4 in Q2.
- U.S. consumers kept spending at a healthy clip despite the energy shock, with Nationwide's Kathy Bostjancic citing a strong labor market, tax refunds, equity wealth effects, and savings drawdowns that absorbed higher prices.
- The PCE inflation index rose 3.7% annually in June, slowing from May, while core PCE rose 3.3% — figures analysts said should keep the Federal Reserve from hiking rates in the short term.
- The Federal Reserve held its key interest rate steady on Wednesday, but three of 12 FOMC members dissented in favor of a hike, signaling internal division over inflation that remains stubbornly above the 2% target.
- Oxford Economics projects core inflation will end 2026 at 3.1%, warning that a sustainable move lower won't come until next year.
- Capital Economics' Thomas Ryan noted it remains unclear whether consumers can absorb another energy hit now that retail gas has risen back above $4 a gallon.
Why it matters: Households are absorbing higher gas prices without yet cracking, with the Commerce Department reporting that a healthy labor market, tax refunds, and equity gains are bridging what savings drawdowns paper over — but three FOMC members already voted to raise rates and Oxford Economics sees core inflation stuck at 3.1% through year-end, meaning the cushion between resilient spending and a consumer retrenchment is unusually thin.
