The United States grew at an annualized rate of 1.5% during the second quarter of 2026, unchanged from the first estimate, while PCE inflation remained in July at 3.7% year-on-year. The two data points leave the Federal Reserve facing an uncomfortable combination: an economy losing momentum, but prices still far from its target.
The Bureau of Economic Analysis confirmed this Wednesday that real GDP increased at a 1.5% annualized rate between April and June.
In the first quarter, it had grown by 2.1%.
The slowdown is explained by a decline in public spending and a lower boost from investment and exports, partially offset by an acceleration in consumption.
Consumption improves within the revision
Although the aggregate growth figure remains at 1.5%, the composition has changed slightly.
The BEA revised consumption upwards, especially services, but also raised imports, which detract from the GDP calculation.
Real final sales to domestic private buyers increased by 4.2%, three-tenths more than calculated in the advance.
Inflation remains well above 2%
The second data published simultaneously is that of personal income and spending for July.
The PCE price index increased by 0.2% month-on-month and 3.7% year-on-year.
The core PCE, which excludes food and energy, also rose by 0.2% in the month and stood at 3.3% compared to July 2025.
The Federal Reserve uses the PCE as its main reference for its price stability target, set at 2% in the long term.
Households spent a little more in real terms
Personal income increased by 0.4% month-on-month and disposable income by 0.5%.
Nominal consumption spending advanced by 0.2%, but once inflation was accounted for, real consumption remained practically flat.
The personal savings rate increased to 3%.
The Fed has two signals in different directions
Weaker growth would tend to reduce the need to maintain high rates.
Core inflation above 3%, on the other hand, makes it difficult to justify a quick easing.
The Federal Reserve itself projected in July a PCE inflation of 3.6% for 2026 and continues to signal 2% as the long-term target.