The US economy grew at a disappointing pace in the first quarter of 2026. The Commerce Department reported that GDP rose at a 2% annualized rate, just 0.5% above the fourth-quarter 2025 rate. This figure fell short of economists’ expectations of 2.2%.
In addition, core inflation in March ran at 3.2%. The core personal consumption expenditures price index (which excludes food and energy) increased by 0.3, while monthly expenses for gas and groceries rose by 0.7%.
Meanwhile, the war in Iran is clouding the economic outlook. Disruptions at the Strait of Hormuz have sent energy prices skyrocketing, with the average cost of a gallon of gasoline reaching $4.30. Some forecasters project the conflict could drag GDP down by 0.3% this year.
Amid these challenges, the AI investment boom and government spending are providing much of the current economic momentum, even as ordinary consumers are starting to pull back. With inflation still above target and energy prices surging, the Federal Reserve remains in a difficult position. Growth is real but fragile, and the geopolitical situation adds downside risk as the rest of 2026 unfolds.
