US economy Q2 growth slows to 1.5% as core PCE inflation holds at 3.3%

US economy Q2 growth slowed to a 1.5% annualized rate, below Wall Street expectations, while the Federal Reserve’s preferred core inflation measure held at 3.3% in June, the Commerce Department said Thursday. The data point to an economy still supported by consumer demand but facing persistent price pressure as the Fed keeps interest rates steady.

Gross domestic product, adjusted for inflation and seasonal effects, rose 1.5% in the April-to-June period, according to the Bureau of Economic Analysis. Economists polled by Dow Jones had expected 1.8% growth, after a 2.1% gain in the first quarter.

A separate Commerce Department report showed the personal consumption expenditures price index fell 0.1% in June on a seasonally adjusted monthly basis, leaving the annual headline inflation rate at 3.7%. The figures matched forecasts cited by Dow Jones.

Core PCE, which strips out food and energy, rose 0.1% for the month and 3.3% from a year earlier. Economists had expected a 0.2% monthly increase and a 3.3% annual reading.

The PCE index tracks prices paid by consumers across a broad set of goods and services. Fed officials formally target headline PCE inflation, though many treat the core measure as a cleaner signal of longer-running inflation trends because food and energy prices can swing sharply.

Why did US GDP slow in Q2?

The softer headline GDP figure reflected weakness in inventories and federal government spending, while several private-sector measures remained firmer, according to the Bureau of Economic Analysis data. Inventories fell 0.7%, and federal spending declined 0.3%, both weighing on the overall growth rate.

Consumer spending rose 2.1% after a 0.4% increase in the first quarter. Final sales to private domestic purchasers, a measure that economists use to gauge domestic demand from households and businesses, increased 3.9%.

Gross private domestic investment rose 0.5%. Exports also increased 0.5%, while imports declined 1.5%. In GDP accounting, exports add to output and imports subtract because imported goods and services are produced abroad.

What did the inflation data show?

The June inflation report came in close to expectations but remained above the Fed’s 2% goal. CNBC reported that inflation had eased heading into 2026 before accelerating after U.S. and Israeli attacks on Iran in late February contributed to a surge in energy prices.

Energy goods and services prices fell 5.9% in June, helped by an easing in Middle East fighting that pulled gasoline prices down 9.2%. Housing inflation moderated to a 0.2% monthly rise. Goods prices fell 0.6%, while services prices increased 0.1%.

On a quarterly basis, the PCE index rose 5.1% on the headline measure and 3.4% on the core measure, according to the Commerce Department figures.

Household spending continued to grow in June, with personal expenditures up 0.3%, in line with expectations cited by Dow Jones. Personal income rose 0.2%, below the 0.3% estimate. The personal saving rate fell to 2.7%, its lowest level in four years, indicating households used more of their income to support spending.

The reports followed a divided Fed decision to keep the benchmark borrowing rate at 3.5% to 3.75%, where it has stood all year. The vote was 9-3, with dissents from regional Fed presidents who have raised concerns about inflation and limited progress toward the central bank’s price-stability goal. For a broader explanation of the policy channel, see how the Fed’s rate target reaches the real economy.

After the data, stock-market futures were positive and Treasury yields moved sharply higher, CNBC reported. The combination of slower GDP growth and still-elevated inflation leaves investors focused on how the Fed weighs demand, prices and labor-market stability in its next policy decisions.

This story draws on original reporting from CNBC.