The U.S. Bureau of Economic Analysis released its advance estimate of second-quarter 2026 US gross domestic product today, alongside the June reading of the US Federal Reserve Board’s (Fed) preferred inflation gauge, the personal consumption expenditure price index (PCE). Despite elevated inflationary pressures, the US economy expanded in the quarter. While inflation began to moderate late in the quarter, tensions in the Middle East escalated in July, raising the upside risks to inflation in the months ahead.

• The US economy grew by 1.5%, annualized, in the second quarter, down from 2.1% in the first quarter. A pickup in consumer spending was offset by decelerating fixed investment and exports, along with a decline in government spending.
• Consumer spending was the bright spot over the quarter. Households spent more on both goods and services, led by prescription drugs, new vehicles and furniture. The US consumer continues to demonstrate their relative resiliency despite tighter financial conditions.
• The Fed’s preferred inflation gauge cooled in June. The PCE price index fell 0.1% in June from May, its first decline in five years. PCE rose by 3.7% year over year in June, which was down from the previous month. Core PCE, which excludes more volatile food and energy prices, rose by 3.3% year over year, inching lower from the previous month.
• Personal income rose 0.2% and personal spending by 0.3% in June, both slowing compared to the previous month. The personal saving rate held steady at 2.7%.

Together, the reports paint a picture of an economy that’s cooling but not stalling. Economic growth slowed from the first quarter’s pace, yet consumers kept spending and inflation eased a touch in June, even if it remains well above the Fed’s 2% target. That combination gives the Fed room to stay patient, but investors should watch whether the slowdown in growth continues into the third quarter.

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