US Economy Stalls on High Inflation Ahead of Midterm Elections

The US economy has reported sluggish growth of 1.5% in the second quarter, slightly below economists' expectations. The Commerce Department attributed this slowdown to a rise in imports, which weighed heavily on GDP growth at 11.5%. Despite this, consumer spending remained robust, increasing by 3.2% annually.

A measure of underlying economic strength, excluding volatile government spending and trade numbers, expanded at a 3.9% annual pace, up from 1.7% in the previous quarter.

The Federal Reserve's preferred inflation gauge, personal consumption expenditures (PCE), rose 3.7% last month from June 2025, but core consumer prices remained above the central bank's 2% target at 3.3%. This has raised concerns among some Fed officials about progress against inflation.

The economy's resilience in the face of rising energy costs and a surge in artificial intelligence investment has been notable. Business investment, excluding housing, rose at an 8.4% pace, driven by increased spending on AI-related products.