US economy slows to 1.5% growth as inflation stays elevated

Real U.S. gross domestic product grew at a 1.5% annual rate in the second quarter, the Bureau of Economic Analysis said in its advance estimate, BEA 26-35, released at 8:30 a.m. EDT Thursday. That was down from 2.1% in the first quarter and showed an economy still expanding, but with the slowdown concentrated in government spending and trade as higher imports offset gains in consumer spending, investment and exports.

For households, the combination matters because slower growth can restrain wage gains just as elevated prices continue to erode buying power. It also keeps borrowing costs in the spotlight, with mortgage, auto and credit-card rates likely to stay sensitive to how long the Federal Reserve keeps policy tight, while stock market swings tied to growth and inflation can filter into retirement accounts.

Inflation has not given policymakers much room to ease. The BEA said the GDP price index, which measures prices of goods and services produced in the United States, was up 3.6% in the first quarter after a 3.7% increase in the fourth quarter of 2025. Core PCE, the Fed’s preferred inflation gauge, rose 3.4% in May 2026, 3.3% in April and March, and 3.0% in February, and separate June data showed core PCE up 0.1%.

That mix has kept the Fed under pressure to balance weaker momentum against sticky prices. Federal Reserve Bank of San Francisco President Mary Daly said on July 2 that policy was “slightly restrictive” and that the next step was uncertain. Traders and analysts have been reading the growth and inflation numbers as a test of whether the economy is simply losing speed or edging toward a stagflationary stretch in which output slows while prices remain uncomfortably high.

The BEA’s calendar pointed to more clues later Thursday with the June 2026 Personal Income and Outlays report at 8:30 a.m. EDT, followed by the June U.S. International Trade in Goods and Services report on August 4 and the second estimate of second-quarter GDP and corporate profits on August 26. A narrower U.S. goods trade deficit in June still looked set to weigh on second-quarter growth, underscoring how trade flows and government spending helped define the quarter’s softer pace.