US GDP Growth Slows to 1.5%, Inflation Remains Above Target

The US economy expanded at an annualized rate of 1.5% in the second quarter, falling short of economists' estimates of 1.8%. The slowdown was not entirely unexpected, given the first-quarter growth rate of 2.1%, but it still marks a significant deceleration.

The GDP estimate also showed that consumer spending remained a key driver of economic growth, accelerating to a 3.2% annualized pace during the quarter. Household spending accounted for more than two-thirds of US economic output and was bolstered by larger tax refunds this year, which helped cushion households from higher fuel costs.

The inflation picture remains concerning for policymakers at the Federal Reserve, however. The personal consumption expenditures price index, the inflation measure most closely watched by the Fed, declined 0.1% on a monthly basis in June, but annual headline inflation remained at 3.7%, significantly above the central bank's 2% target.