WS Investor
30 Jul 2026, 15:16
US Economy Slows in Second Quarter as Inflation Cools
The U.S. economy grew at a slower pace than expected in the second quarter, while inflation continued to ease, reinforcing signs that economic growth is moderating even as price pressures gradually decline.
Gross domestic product expanded at an annualized rate of 1.5% in the second quarter, below both the 2.1% market expectation and the 2.1% growth recorded in the first quarter. The weaker reading points to slower economic momentum amid a still-restrictive interest rate environment.
Inflation Continues to Moderate
The Federal Reserve's preferred inflation gauge also showed further improvement. The headline PCE Price Index fell 0.1% month-over-month in June, matching expectations and reversing the 0.5% increase recorded in May. On an annual basis, PCE inflation slowed to 3.7%, in line with forecasts and down from 4.1% previously.
The softer inflation data suggest price pressures continue to ease, although inflation remains above the Federal Reserve's long-term target.
Markets Focus on Fed Outlook
The combination of slower economic growth and cooling inflation may strengthen expectations that the Federal Reserve will have greater room to ease monetary policy if inflation continues trending lower. However, policymakers are likely to seek additional evidence that inflation is moving sustainably toward target before making significant policy adjustments.
What to Watch
Investors will now turn their attention to upcoming labor market and inflation reports for further confirmation of the economy's trajectory. Whether inflation continues to cool without a sharper slowdown in economic activity will remain the key factor shaping expectations for future Federal Reserve interest rate decisions.
The U.S. economy grew at a slower pace than expected in the second quarter, while inflation continued to ease, reinforcing signs that economic growth is moderating even as price pressures gradually decline.
Gross domestic product expanded at an annualized rate of 1.5% in the second quarter, below both the 2.1% market expectation and the 2.1% growth recorded in the first quarter. The weaker reading points to slower economic momentum amid a still-restrictive interest rate environment.
Inflation Continues to Moderate
The Federal Reserve's preferred inflation gauge also showed further improvement. The headline PCE Price Index fell 0.1% month-over-month in June, matching expectations and reversing the 0.5% increase recorded in May. On an annual basis, PCE inflation slowed to 3.7%, in line with forecasts and down from 4.1% previously.
The softer inflation data suggest price pressures continue to ease, although inflation remains above the Federal Reserve's long-term target.
Markets Focus on Fed Outlook
The combination of slower economic growth and cooling inflation may strengthen expectations that the Federal Reserve will have greater room to ease monetary policy if inflation continues trending lower. However, policymakers are likely to seek additional evidence that inflation is moving sustainably toward target before making significant policy adjustments.
What to Watch
Investors will now turn their attention to upcoming labor market and inflation reports for further confirmation of the economy's trajectory. Whether inflation continues to cool without a sharper slowdown in economic activity will remain the key factor shaping expectations for future Federal Reserve interest rate decisions.
