The US economy expanded at a modest 1.5% annual rate during the second quarter, according to preliminary data released by the commerce department. This marked a deceleration from the 2.1% growth recorded in the first quarter and came in below analyst forecasts. The slowdown reflected headwinds from increased imports, which subtracted from overall economic output.
Consumer spending continued to support economic activity, providing a counterweight to the slower overall growth rate. The Federal Reserve’s preferred inflation gauge, the personal consumption expenditures index, showed some signs of moderation, rising 3.7% on a year-over-year basis in June, compared with a 4.1% increase in May. Core inflation, which excludes food and energy prices, held steady at 3.3% annually, slightly down from 3.4% the prior month. Despite the recent deceleration, inflation remained substantially above the Fed’s stated 2% target.
Economists attributed much of the economic slowdown and persistent inflation pressures to ongoing geopolitical tensions in the Middle East, which have elevated energy prices. Oil prices initially retreated following reports of a potential peace agreement between the US and Iran, but resumed climbing after negotiations collapsed and military exchanges resumed. Energy costs remain elevated compared to prewar levels, continuing to exert upward pressure on prices.
The Federal Reserve’s policy committee maintained its benchmark interest rate unchanged for the fifth consecutive meeting, but faced unusual internal dissent. Three regional Fed presidents voted in favor of raising rates to address stubborn inflation, marking the first time in a decade that such a significant number of officials dissented on the same side of a policy decision. Fed Chair Kevin Warsh acknowledged that inflation has remained persistently above target for an extended period.
Public sentiment regarding inflation has grown increasingly pessimistic. Recent polling indicated that two-thirds of Americans express limited confidence in the government’s ability to address elevated prices. Despite these concerns, the labor market has shown resilience, with employers adding an average of 92,000 jobs monthly this year, a substantial improvement from fewer than 10,000 monthly additions in the previous year. The report released on Thursday represents the first of three successive commerce department estimates for second quarter economic performance.
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