US GDP grows 2% in Q1 2026, Iran war clouds outlook

The US economy grew at a 2% annual rate in the first quarter of 2026, rebounding from a 0.5% expansion in the previous quarter, according to the Commerce Department. Growth was supported by a recovery from the 43-day federal government shutdown last autumn. Federal spending and investment surged 9.3%, adding over half a percentage point to GDP. Consumer spending, which accounts for 70% of economic activity, slowed to 1.6% from 1.9%. Business investment rose 8.7%, likely driven by artificial intelligence. The housing market remained weak, with residential investment falling 8% for the fifth consecutive quarter. Imports rose 21.4%, cutting 2.6 percentage points from growth. The Iran war has clouded the outlook, as Iran blocked the Strait of Hormuz, driving up energy prices and fueling inflation. The Federal Reserve kept interest rates unchanged, citing high uncertainty from the conflict.