• U.S. personal consumption rose at an annualized 2.5% quarter-on-quarter in the second quarter, driving a sharp economic rebound.
  • The core PCE price index, the Federal Reserve's preferred inflation gauge, increased 2.6%, slightly above the 2.5% estimate.
  • The GDP price index climbed 2.1%, indicating broad-based price pressures that remain slightly elevated.

A Resilient Consumer Drives Growth

The U.S. economy snapped back to life in the second quarter, powered by resilient consumer spending that topped expectations and inflation measures that moderated but remained stubbornly above the Federal Reserve's target. The data, released Thursday, shows personal consumption expenditures rose at an annualized rate of 2.5% from the prior quarter, a significant acceleration from the first quarter's anemic pace and a central driver behind GDP growth estimates that have rebounded to between 2.3% and 3.3%.

This resurgence follows a 0.5% contraction in the first quarter, a period marked by tariff-related supply chain disruptions and inventory adjustments. The robust consumer activity suggests households, buoyed by continued job growth—671,000 jobs were created in the first five months of the year—have regained confidence to spend despite lingering inflation concerns.

Inflation Moderates, But Not Enough

While the rebound in growth was a key focus for markets, the inflation details captured the attention of policymakers. The core Personal Consumption Expenditures (PCE) price index, which strips out volatile food and energy costs, rose at an annualized 2.6% pace, just above the consensus estimate of 2.5%. The broader GDP price index increased 2.1%, compared to expectations for a 2.0% rise.

These figures indicate that while inflation pressures are moderating in key sectors like housing, they remain persistent. The data likely reinforces the Federal Reserve's stance of holding interest rates at restrictive levels as it awaits more conclusive evidence that inflation is on a sustainable path back to its 2% goal. Efforts to reach the Fed for immediate comment on the data were not immediately successful.

Policy Support and Future Risks

The second-quarter rebound was also supported by fiscal tailwinds, including the recent passage of the "One Big Beautiful Act" stimulus package. This fiscal support, combined with delayed adjustments to certain tariffs, has helped boost capital expenditures and provided a cushion for the economy.

Looking ahead, economists see a path for continued moderate growth into the third quarter, contingent on consumer strength holding up. However, the outlook is clouded by risks, including potential energy price spikes and the unresolved uncertainty surrounding international trade policy. For now, the economy appears to be on a more stable footing, though the slightly hotter-than-expected inflation readings serve as a reminder that the path to a soft landing is not yet assured.