The US economy grew at an annual rate of 1.5% in the second quarter, slower than economists expected, as the Iran war and new tariffs weighed on business activity. The Commerce Department report showed growth easing from the previous quarter and missing forecasts of around 2%.
Growth slows as war and tariffs bite
The slowdown reflects a mix of forces. The Iran conflict disrupted shipping routes and pushed energy prices higher. Tariffs on a wide range of imports raised costs for manufacturers and retailers. Business investment softened, and export growth cooled. Companies also pulled back on hiring, though the job market has stayed unusually stable, with initial jobless claims recently falling to a nearly 57-year low. Economists say the full effect of the war may not show up until later quarters if fighting resumes.
Consumers keep spending anyway
Consumer spending was the bright spot, surging at a 3.2% annual rate. Bigger tax refunds and higher gas prices helped drive the gain, according to the report. Shoppers kept buying cars, travel and services even as prices rose. Analysts warn that this spending pace may not last if inflation keeps eating into household budgets. Some retailers are already reporting cautious customers, and pending home sales fell 5.4% in June as mortgage costs climbed.
Fed holds rates as inflation returns
The Federal Reserve held interest rates steady for the fifth consecutive meeting, citing resurgent inflation linked to the war and energy costs. The decision was widely expected, though some officials dissented and pushed for a hike. Wall Street closed down sharply after the announcement. Economists are split on whether the Fed will raise rates later this year. Mortgage rates have climbed to nearly 6.55%, their highest level in a year, adding pressure on home buyers and the broader housing market. Many families are now waiting for clearer signals on rates before making large purchases.