The United States economy expanded at a moderate pace in the first quarter of 2026, while inflation accelerated to its highest level in three years, complicating the outlook for monetary policy.
According to preliminary data released by the Bureau of Economic Analysis, gross domestic product grew at an annualized rate of 2% in the first quarter, below market expectations of 2.3%, but a notable improvement from 0.5% growth recorded in the final quarter of 2025.
The modest expansion came despite a surge in investment tied to artificial intelligence and an anticipated boost from the resolution of a government shutdown late last year, suggesting underlying economic momentum remains uneven.
At the same time, inflationary pressures intensified. The Personal Consumption Expenditures (PCE) price index, closely watched by the Federal Reserve, rose by 0.7% in March on a monthly basis, marking the largest increase since June 2022, following a 0.4% gain in February.
On an annual basis, headline PCE inflation climbed to 3.5% by the end of March, up sharply from 2.8% in the previous month and reaching its highest level since mid-2023. Core PCE inflation, which excludes volatile food and energy prices, also accelerated to 3.2% year-on-year, compared to 3.0% in February, with a monthly increase of 0.3%.
The uptick in inflation has been largely attributed to rising gasoline prices amid geopolitical tensions, adding to concerns that price pressures may remain elevated for longer than previously expected.
The data reinforces expectations that the Federal Reserve may hold interest rates steady well into next year, as policymakers weigh persistent inflation risks against signs of only moderate economic growth.
In a separate release, labor market data pointed to continued resilience. Weekly jobless claims fell sharply to 189,000, down from 214,000 the previous week and below forecasts of 212,000, indicating ongoing strength in employment conditions.
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