US Q2 GDP Slows to 1.5% as Core PCE Inflation Persists Through Summer
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United States GDP for the second quarter of 2026 rose 1.5% year-on-year in the second estimate, as expected and unchanged from the preliminary estimate, according to the latest figures from the Bureau of Economic Analysis (BEA). The gain of 1.5% was, however, significantly lower than first-quarter GDP, which indicated that the economy expanded by 2.1%.
The second-quarter GDP reading reflected a decrease in government spending and slower growth in investment and exports compared with the first quarter, partly offset by stronger consumer spending, according to the BEA.
Inflation Remains Sticky
Alongside the GDP report, the Core PCE Price Index, considered the Federal Reserve’s preferred inflation indicator, was unchanged in July at 3.3% year-on-year and matched the market estimate. On a monthly basis, core PCE ticked higher to 0.2%, up from 0.1% and matching the market estimate.
The Fed has targeted 2% for inflation, but core PCE, which has hovered at 3.3%, is an uncomfortable level for the U.S. central bank. Fed officials have voiced concerns that stubborn inflation will force the Fed to maintain interest rates at higher levels for an extended period – “higher for longer”.
There has been some good news out of the Middle East as talks between Oman and Iran over restoring shipping lanes in the Straits of Hormuz continue and Pakistan is trying to revive negotiations between the U.S. and Iran. This ray of optimism has sent oil prices to more than two week lows, with crude trading at around $86 a barrel.
The US has threatened further economic sanctions against Iran, but at the same time the likelihood of a US military strike has lessened considerably. If tensions over a military confrontation continue to ease, risk appetite should rise, which would likely send the safe-haven US Dollar lower against the major currencies.
Market Reaction – U.S. Dollar Higher, Stock Market Calm
In the Forex market, the U.S. dollar is showing modest gains against most of the major currencies on Wednesday, in the aftermath of the GDP and PCE releases. The EUR/USD currency pair is down 0.16%, trading at 1.1655 and GBP/USD has eased 0.31%, trading at 1.3606. The Dollar has shown its strongest gains against the New Zealand dollar, as NZD/USD has declined 0.54%, trading at 0.5945.
The U.S. stock market has just opened and is showing little movement:
The S&P 500 Index is down 3.96 points (0.045%) at 7,673.32.
The Nasdaq 100 Index is down 45.81 points (0.18%) at 26,105.49.
We hope you enjoyed reading this analysis of the latest US inflation and GDP data. If you want to trade it, check out our list of the best Forex brokers.