The U.S. economy grew at a modest 1.5% annual rate from April through June, impacted by an increase in imports. Despite this, consumer spending remained strong, contributing positively to the economy. Meanwhile, inflation favored by the Federal Reserve grew at a slower pace, yet stayed above the 2% target, adding to public frustration with the high cost of living ahead of the midterm elections.

The nation’s gross domestic product (GDP) growth decreased from 2.1% in the first quarter of 2026, as reported by the Commerce Department. This fell short of economists’ expectations. However, consumer spending, which makes up approximately 70% of economic activity in the U.S., increased at a rate of 3.2%, a significant rise from the 0.5% seen during the first quarter.

The economy’s core strength, excluding volatile elements like government spending and trade, expanded at a rate of 3.9% annually, up from 1.7% in the prior quarter. Business investment, excluding housing, grew at an 8.4% pace, though less than the previous 10.6%. Investment in artificial intelligence drove much of this growth.

Imports increased at an 11.5% rate, driven by a surge in computer chips and other AI-related products. These imports subtracted 1.5 percentage points from the GDP growth for the quarter. Olu Sonola from Fitch Ratings stated, “The consumer rescued the quarter. AI investment remains a powerful growth story, but the import surge underpinning the buildout is a reminder that an AI boom does not automatically translate into an equally large boost to U.S. GDP.”

The Commerce Department revealed that its personal consumption expenditures (PCE) price index, which the Fed prefers, rose 3.7% in June 2025, down from 4.1% in May. Core consumer prices, excluding food and energy, rose 3.3% yearly, nearly unchanged from 3.4% the previous month. There was a 0.1% price decline from May to June, influenced by a 9.2% decrease in gasoline and energy product prices. The PCE figures aligned with economists’ expectations. Yet, the year-over-year price increase has stayed above the Fed’s target for over five years, causing some Fed officials to urge for a rise in rates.

The American economy has shown resilience amid the Iran war and the resulting energy price hikes. Employment has picked up this year, contrasting a weaker 2025, allowing consumers more spending capability. On average, employers are adding 92,000 jobs monthly in 2026, compared to less than 10,000 per month in 2025, when high interest rates and tariff policies discouraged hiring.

The higher living costs have increased public dissatisfaction as the midterms approach, deciding the control of Congress. An AP-NORC poll indicates growing concern about the Iran war and domestic energy prices. About 72% of adults consider keeping oil and gas prices stable as extremely or very important, reflecting an increase from March’s 67%.