Published on 6/25/2026
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Last update: 21:44 (Mecca time)
The US economy grew faster than expected during the first quarter of 2026, while separate data showed inflation rising during May to its highest level in three years, reinforcing expectations of continued tightening of US monetary policy.
The US Department of Commerce announced today, Thursday, in the final reading of the gross domestic product, that the economy recorded an annual growth of 2.1% during the period from January to March, compared to a growth of 0.5% in the last quarter of 2025. The reading was also higher than previous estimates of 1.6%.
US economic growth was supported by an increase in corporate investments, especially in data centers and artificial intelligence equipment and technologies, in addition to the contribution of exports and consumer spending, while government spending declined compared to the previous quarter.
In the labor market, US Department of Labor data showed a decrease in new applications for unemployment benefits by 12,000 applications to 215,000 during the week ending June 20, which is a better level than market expectations of 225,000 applications, in an indication of the continued strength of the labor market despite companies’ caution in hiring.
Inflation pressures
On the other hand, the core personal consumption expenditures index, which is the Federal Reserve’s preferred measure for measuring the inflation rate, rose to 3.4% during May on an annual basis, recording the highest level since October 2023.
The general index of personal consumption expenditures also rose to 4.1% on an annual basis, the highest level since April 2023, driven by an increase in energy prices as a result of the repercussions of the US-Iranian war, in addition to the rise in housing, financial services and insurance costs.
At the same time, consumer spending rose by 0.7% last May, personal income also increased by the same rate, while the savings rate rose to 3%.
Despite the continued strength of the economy and the labor market, analysts expect that the Federal Reserve will continue to monitor inflation developments before making any decision on interest rates, especially after the return of navigation through the Strait of Hormuz has strengthened expectations for the gradual stability of energy markets, with oil prices remaining higher than their pre-war levels.
