US economic growth slowed in the second quarter, underperforming economists’ expectations and adding another wrinkle to the Federal Reserve’s path forward, even as consumer spending remained strong.
GDP rose at an annual rate of 1.5%, the Commerce Department said Thursday, below economists’ estimates of 2% annual growth
The second quarter figures also showed a marked slowdown from the first quarter, when GDP grew 2.1% year over year. The GDP price index — which measures prices across the entire basket of US goods and services — rose 6.2% year over year, far overshooting estimates of 4% growth and the previous quarter’s 3.6% increase. On a “core” basis, which excludes volatile food and energy costs, the GDP price index rose by a more restrained 3.4% year over year, against estimates of 3.5% and the previous month’s markedly hotter 4.4% increase.
The data presents a complicated picture for the Federal Reserve, which on Wednesday voted to hold rates steady. If prices keep inching up while growth slows, worries may spread about the potential for “stagflation,” which is when growth stagnates but prices go up anyway. The question for the Fed is how long energy price pressure driven by the war in Iran will continue to keep inflation elevated and hamper the economy.