The US economy improved in the first quarter of this year, growing 2 percent, after an abysmal performance in the fourth quarter of 2025 due to the government shutdown. Even though it was an improvement, the economy did not grow as fast as expected (2.2 percent) due to a slowdown in consumer spending. The growth was primarily driven by business investment in AI, which made up half of the overall GDP growth.
Consumer spending grew 1.6 percent in Q1, versus 1.9 percent in Q4 2025. The number is still solid, given the impact of winter weather and the war in the Middle East. The consensus feels the US economy is weaker but steady.
The Fed met last week and did not change rates, citing elevated inflation and low job gains. The situation in Iran has added a high level of uncertainty to the outlook. The feeling now is, with 80 percent probability, the Fed will not change interest rates before December.
