The U.S. economy expanded at a sluggish 1.5% annualized pace from April through June as rising imports weighed on growth, according to the Commerce Department’s Bureau of Economic Analysis. Gross domestic product decelerated from a 2.1% increase in the first three months of the year, coming in below economists’ expectations.
Second-Quarter Growth Decelerates to 1.5% Amid Rising Imports
Imports rose at an 11.5% pace, partly driven by a surge in shipments of computer chips and other products supporting artificial intelligence investment, which shaved 1.5 percentage points off second-quarter GDP growth. Additional pressure on the top-line reading came from a decline in federal government spending and inventories, according to CNBC.
Consumer Spending and AI Investment Prop Up Underlying Demand
Despite the headline slowdown, key areas of the economy showed underlying strength. Consumer spending, which accounts for about 70% of U.S. economic activity, increased at a 3.2% annual rate, up from 0.5% in the January–March period. Analysts noted that spending was bolstered by generous tax refunds from President Donald Trump’s administration, asset price gains for higher-income households, spending related to the recently ended FIFA World Cup tournament, and nonprofit spending ahead of the midterm elections.
Business investment, excluding housing, rose at an 8.4% pace, reflecting a strong surge in investment in artificial intelligence infrastructure. A key measure of the economy’s underlying strength that strips out volatile government spending and trade numbers—final sales to private domestic purchasers—expanded at a robust 3.9% annual pace, up from 1.7% in the first quarter.
Inflation Remains Above Federal Reserve Target as Rates Hold Steady
The personal consumption expenditures (PCE) price index rose 3.7% last month from June 2025, down from a 4.1% year-over-year increase in May, Apnews reported. Core consumer prices, excluding volatile food and energy, were up 3.3% from a year earlier, little-changed from a 3.4% increase in May. Prices fell 0.1% from May to June, aided by a 9.2% drop in gasoline and other energy products following a temporary ease in Middle East fighting.
The inflation readings remained above the Federal Reserve’s 2% target. On July 29, a divided Federal Reserve voted 9–3 to leave its benchmark interest rate unchanged in a range between 3.5% and 3.75% for the fifth straight meeting. Three regional Fed presidents dissented, preferring a quarter-percentage-point rate hike to combat elevated inflation:
- Dallas Fed President Lorie Logan
- Minneapolis Fed President Neel Kashkari
- Cleveland Fed President Beth Hammack
Broader Pressures and Economic Resilience
Federal Reserve Chair forbes.com has pointed to the central bank’s zero tolerance for persistently elevated inflation. Meanwhile, traders using CME Group’s FedWatch tool priced in rising odds of a rate hike in September, reaching 59.2%.
The U.S. economy has faced headwinds from the U.S.-led war with Iran, now in its sixth month, which caused a spike in energy prices and pushed average gasoline prices back above $4 a gallon. To maintain spending in the face of higher costs and wages barely keeping up with inflation, consumers dipped into their savings, pushing the personal savings rate down to 2.7%, its lowest level in four years. At the same time, the job market has bounced back this year with employers adding an average of 92,000 jobs a month, compared with fewer than 10,000 a month in 2025.
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