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US economy slowed more than expected as the Iran war took hold
ABC News - Breaking News, Latest News and Videos • • business
Key Points:
- The U.S. economy grew at an annualized rate of 1.5% in the second quarter, slowing from 2.1% in the previous quarter and falling short of economists' expectations amid inflation pressures linked to the Iran war.
- Inflation rose to 3.5%, exceeding the Federal Reserve's 2% target, driven in part by a surge in gasoline prices that peaked at $4.56 per gallon in May following a Middle East oil shock.
- Despite higher costs, the labor market remained resilient, supported by significant investment in artificial intelligence, which contributed about two-thirds of GDP growth in the first half of 2025.
- The combination of persistent inflation and a strong job market has increased the likelihood of an interest rate hike by the Federal Reserve, which was scheduled to announce its decision shortly before the GDP report.
- The current benchmark interest rate stands between 3.5% and 3.75%, a decrease from its 2023 peak, but still considerably above pre-pandemic levels, with Fed Chair Kevin Warsh committed to reducing inflation.
