US GDP Slows to 1.5% as Iran War Lifts Gas Prices
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- U.S. GDP grew at a 1.5% annualized rate in Q2 2026, below the 2.1% economists forecast via Reuters and down from Q1's 2.1% — a signal the Iran war is dragging growth.
- The Iran war disrupted shipping through the Strait of Hormuz and pushed average U.S. gasoline prices from $2.98 per gallon pre-war to over $4 in the second quarter.
- Consumer spending held up despite the energy shock, propped up by a healthy labor market, tax refunds and reductions, positive equity-market wealth effects, and savings drawdowns, per Nationwide chief economist Kathy Bostjancic.
- AI investment is also keeping the economy moving forward, according to Oxford Economics.
- The PCE price index rose 3.7% annually in June, down from May, with core PCE at 3.3% — softer figures that analysts say should deter the Fed from hiking rates soon.
- The Federal Reserve held its key rate steady on Wednesday, but three of 12 FOMC members dissented in favor of a rate hike, signaling internal division over inflation that remains above the 2% target.
- Fed Chair Kevin Warsh said reaching the 2% target will take time, noting "the five-plus years of inflation above target cannot be cured in nine weeks."
Why it matters: The Fed faces a sharpening bind: weaker-than-expected 1.5% Q2 growth argues for patience, yet three FOMC members voted to hike and core PCE remains at 3.3%. Oxford Economics warns renewed pressure on real incomes is coming in the second half now that gas sits back above $4, meaning the rate path hinges on whether the Iran war's energy shock deepens or fades.
