The US economy expanded at an annualized rate of just 1.5% in the second quarter, significantly underperforming consensus expectations for gross domestic product growth.
The Commerce Department’s report highlights a marked deceleration in economic momentum, raising questions about the durability of the expansion heading into the second half of the year.
5% in June—surprising markets with a lower-than-expected reading—the underlying core measure indicates that price pressures have not yet dissipated to a level that would comfortably allow for rate cuts.
Complicating the picture for policymakers, June core inflation remained sticky at 3.3%, well above the Federal Reserve’s 2% target.
While headline consumer price inflation had previously decelerated to 3.5% in June—surprising markets with a lower-than-expected reading—the underlying core measure indicates that price pressures have not yet dissipated to a level that would comfortably allow for rate cuts.
This combination of slowing growth and persistent inflation creates a challenging environment for the Federal Reserve.
The central bank has not ruled out further rate adjustments, but the divergence between weak real activity and stubborn price pressures limits its flexibility.