The United States economy grew at a solid pace over the first three months of 2026, rebounding from sluggish performance at the end of last year, a government report on Thursday showed.
The economy grew at an annualized rate of 2% in the first quarter, marking an acceleration from 0.5% growth recorded in the previous quarter. The performance came in slightly below economists’ expectations.
The fresh data covers a period mostly before the outset of the Iran war on Feb. 28, which sent gasoline prices surging and prompted warnings of a possible recession.
The jump in economic output over the first quarter owes to a rise in government spending, exports and investment, the U.S. Commerce Department said.
Consumer spending slowed down from the previous quarter, however, providing a cautionary note for the nation’s outlook. Consumer spending accounts for about two-thirds of U.S. economic activity.
Households, meanwhile, are weathering a surge in prices as a result of an oil shock set off by the Iran war.
People walk along Broadway with shopping bags in Manhattan on February 27, 2026 in New York City.
Spencer Platt/Getty Images
The Personal Consumption Expenditures Price Index, a measure of inflation preferred by the Federal Reserve, increased 3.5% in March, the report showed. That reading marked a jump from a 2.8% rate in the previous month.
The Middle East conflict prompted Iran’s effective closure of the Strait of Hormuz, a critical waterway that facilitates the transport of about one-fifth of the global supply of oil and natural gas.
The average price of a gallon of gas stands at $4.30 as of Thursday, hitting the highest level in four years.
The Federal Reserve held interest rates steady on Wednesday, in part due to the recent rise in costs. The benchmark rate stands at a level between 3.5% and 3.75%.
The solid economic performance at the outset of this year may allow the Fed to keep interest rates elevated for longer as it seeks to avert a prolonged rise in prices amid the Iran war.
