US Economy Grinds to a Halt as Inflation Remains Above Target

The US economy's growth rate slowed down to 1.5% in the second quarter, missing economists' expectations. The deceleration from 2.1% in the first three months of this year was largely due to a surge in imports, which shaved off 1.5 percentage points from GDP growth.

However, consumer spending remained strong, increasing at a 3.2% annual clip, up from 0.5% in the January-March period. This resilience in consumer spending is attributed to a robust job market, with employers adding an average of 92,000 jobs per month this year.

The Federal Reserve's preferred measure of inflation, the PCE price index, rose 3.7% last month from June 2025 but remains above its 2% target. Core consumer prices, excluding volatile food and energy prices, were up 3.3% from a year earlier, with prices actually falling 0.1% from May to June due to a drop in gasoline and other energy products.

Olu Sonola, head of US economics at Fitch Ratings, noted that 'the consumer rescued the quarter' but also cautioned that an AI boom does not automatically translate into equally large GDP growth. The Fed's decision to leave its benchmark interest rate unchanged for the fifth straight meeting was met with dissent from three regional presidents who wanted to raise rates to combat elevated inflation.