U.S. Economic Growth Misses Forecasts

(MENAFN) The United States economy picked up pace in the opening months of 2026, though not fast enough to satisfy forecasters, as inflation simultaneously accelerated to levels that could pressure the Federal Reserve to revisit its cautious monetary stance.

The Commerce Department's Bureau of Economic Analysis confirmed Thursday that gross domestic product expanded at an annualized rate of 2% between January and March — four times the 0.5% recorded in the final quarter of 2025, yet still short of what markets had anticipated.

Driving the quarterly rebound were gains across investment, exports, consumer spending, and government outlays. Compared with Q4 2025, the pickup in real GDP was led by stronger government spending, rising exports, and increased investment, though a deceleration in consumer activity capped the overall advance. A concurrent rise in imports — which are deducted from GDP calculations — also weighed on the headline figure.

A closely watched gauge of domestic economic health offered a brighter signal: real final sales to private domestic purchasers, which captures consumer spending and gross private fixed investment, climbed 2.5% in the first quarter, building on a 1.8% gain the quarter prior.

The inflation picture, however, darkened sharply. The personal consumption expenditures (PCE) price index surged 4.5% in Q1, up markedly from 2.9% in Q4 2025. Stripping out volatile food and energy costs, the core PCE index rose 4.3%, compared with a 2.7% increase previously. The broader price index for gross domestic purchases edged up 3.6%, a fractional easing from the 3.7% rise logged in the fourth quarter.

The data arrives at a pivotal moment. The Federal Reserve, which held its benchmark interest rate steady at its policy meeting just one day earlier on Wednesday, is now navigating a delicate balancing act — keeping a lid on stubborn inflation without derailing an economy still finding its footing.

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