The U.S. economy expanded at just 1.5% from April through June, while working families face mounting financial pressures from rising mortgage rates and gas prices that have climbed back above $4 per gallon.
The Commerce Department reported that growth in gross domestic product decelerated from 2.1% in the first three months of 2026, falling short of economists' expectations as rising imports weighed on the economy. Consumer spending increased at a 3.2% annual clip, up from 0.5% in the January-March period, but that growth comes as households stretch budgets amid persistent inflation.
Housing Costs Lock Out Buyers
The average 30-year fixed-rate mortgage rose to 6.66% from 6.58% last week, marking the fourth consecutive week of increases and reaching its highest level in a year, mortgage buyer Freddie Mac said Thursday. One year ago, the average rate was 6.72%. Borrowing costs on 15-year fixed-rate mortgages also rose this week to 6.04% from 5.96% last week, up from 5.85% a year ago.
Prospective homebuyers hoping for relief from elevated borrowing costs face another setback as housing affordability continues to deteriorate. The benchmark rate increase represents a significant barrier for families trying to enter the housing market or refinance existing loans.
Energy Prices Climb Amid Middle East Conflict
Americans' confidence in the economy fell this month as gas prices ticked up along with fighting between the U.S. and Iran. The Conference Board said Tuesday that its consumer confidence index fell to 90.8 in July from 92.2 in June, remaining in the same tepid range it's been in since the beginning of the year. In late 2024 and early 2025, the readings were well above 100.
The average price for a gallon of regular gas in the U.S. rose to $4.11, according to AAA, up from $3.85 a month ago. Consumer attitudes had improved modestly in June as gas prices came down to around $3.70 a gallon from more than $4.50 in late April and early May. But as fighting in the Middle East escalated, prices started climbing again. Trips to the grocery store and gas station were more painful than they were last year, affecting the decisions of both households and businesses.
The price for a barrel of Brent crude rose 2.1% to $88.68 after careening between $72 and $102 earlier in July. Higher oil prices pushed energy costs up across the country, adding to worries about inflation already squeezing the bond market.
Federal Reserve Holds Rates Despite Dissent
The Federal Reserve left its key interest rate unchanged Wednesday at around 3.6%, marking the fifth straight meeting without a change, although three officials dissented in favor of higher rates as the central bank wrestled with how to deal with persistently high inflation. The Fed's rate-setting committee reached its decision after two days of deliberations.
Some economists and Wall Street analysts had predicted the Fed would hike its rate by a quarter point. While the decision to stand pat could be seen as good news for consumers, they might not feel much relief with the average credit card rate still near 20% and mortgage rates the highest since last August. The Fed's favored measure of inflation grew more slowly last month but remained above the central bank's 2% target.
Labor Market Remains Tight
U.S. filings for jobless aid in the week ending July 25 rose by 9,000 to 197,000, the Labor Department reported Thursday. The previous week's figure was revised up by 1,000 to 188,000 but remained the lowest in more than 50 years. Analysts surveyed by FactSet forecast 207,000 new applications. Weekly filings for unemployment benefits are considered representative of layoffs and are close to a real-time indicator of the health of the U.S. job market.
Consumer spending, which accounts for about 70% of U.S. economic activity, continues to drive growth even as households face mounting cost pressures. Business investment, excluding housing, rose at an 8.4% pace, down from 10.6% from January through March but still strong, reflecting a surge in investment in artificial intelligence.
The U.S. stock market swung wildly but ended the week with gains. Amazon leapt, Apple sank, and rising oil prices added to concerns about inflation's impact on both consumers and the broader economy.
Why This Matters:
The combination of slowing economic growth, rising mortgage rates, and climbing gas prices creates a squeeze on working families already struggling with the cumulative impact of years of elevated inflation. When mortgage rates hit year-highs and gas prices climb back above $4 per gallon, it's not an abstract economic indicator—it's hundreds of dollars per month out of household budgets. The erosion of consumer confidence reflects real financial stress, as families face higher costs for essentials while wages struggle to keep pace. The Federal Reserve's decision to hold rates steady, despite three dissenting votes for increases, highlights the difficult balance between controlling inflation and avoiding further economic slowdown. With business investment still strong but consumer-facing costs rising, the risk is that economic pain falls disproportionately on households least able to absorb it, while corporate investment in areas like artificial intelligence continues unimpeded.