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US economy slowed more than expected as the Iran war took hold

A job seeker fills out an application during the HIRE360 Diversity Hiring Expo on April 28, 2026, in Inglewood, California. (Photo by Justin Sullivan/Getty Images)

(WASHINGTON) — The United States economy slowed more than expected as an inflation surge took hold over the early months of the Iran war, a government report on Thursday showed.

The economy grew at an annualized rate of 1.5% over three months ending in June, marking a slight slowdown from 2.1% growth recorded in the previous quarter. The figure came in lower than economists’ expected.

Still, the latest data outperformed 0.5% annualized gross domestic product (GDP) recorded over final three months of 2025.

The period covered by the data release followed a historic global oil shock set off by the Middle East conflict.

The national average price for a gallon of gasoline soared to a price as high as $4.56 a gallon in May, AAA data showed, before easing somewhat after a preliminary peace agreement last month.

Annual inflation has climbed to 3.5%, putting it more than 1 percentage point higher than the Federal Reserve’s target rate of 2%.

Still, hiring has proven more resilient than many economists feared, despite elevated costs for businesses and shoppers.

In recent quarters, a burst of investment in artificial intelligence has accounted for a large share of the nation’s economic growth.

A surge of AI spending accounted for roughly two-thirds of gross domestic product growth over the first half of 2025, JPMorgan Asset Management found, outpacing the contribution made by hundreds of millions of U.S. consumers. Many of the nation’s largest companies have poured funds into the chips and data centers necessary to operate AI.

The combination of elevated inflation and a resilient labor market, meanwhile, has raised the chances of an interest rate hike, futures markets show. The prospect of a rate increase poses the risk of a slowdown in economic activity over the coming months as corporations face the prospect of higher borrowing costs.

The benchmark rate stands at a level between 3.5% and 3.75%. That figure marks a significant drop from a recent peak attained in 2023, but borrowing costs remain well above a 0% rate established at the outset of the COVID-19 pandemic.

Fed Chair Kevin Warsh, who took the helm of the central bank this summer, has vowed to dial back inflation.

“Persistently high prices are a burden for the American people,” Warsh told reporters in Washington, D.C., last month. “This committee will deliver price stability.”

Copyright © 2026, ABC Audio. All rights reserved.

Western Europe breaks temperature record in summer plagued by heatwaves and wildfires

By CNN
(CNN) — The first two months of summer in western Europe have been the hottest on record, the European Union’s climate monitor said Monday, as the continent grapples with devastating wildfires and braces for yet another heatwave.The average temperature for June and July was 21.62 degrees Celsius (70.9 Fahrenheit), about 2.79 degrees above the average, and surpassing the previous heat record set in 2022, said the Copernicus climate change service.July was also the hottest month ever logged for the world’s non-polar oceans, Copernicus said, with record high temperatures set along the Atlantic and western Mediterranean, putting sea life and coastal communities at risk. The conditions were partly fueled by the so-called “Super” El Niño weather pattern developing in the pacific.The continent has been hit by a string of deadly heatwaves, with more hot temperatures forecast for this week. Heat has killed more than 25,000 people across Europe this year, according to data compiled by Bloomberg.Europe is the world’s fastest-warming continent but is particularly ill-equipped to withstand heat, due to older infrastructure and a lack of air conditioning.The scorching temperatures and persistent droughts in June and July mutually reinforced each other to create a hot weather spiral, according to Samantha Burgess, strategic lead for climate at the European Centre for Medium-Range Weather Forecasts.“As soils dry out, they lose their ability to provide natural cooling, allowing heat to build more readily,” Burgess said, adding that it was “a clear example of how climate change is intensifying heat extremes.”Surface soil moisture levels across western Europe in July 2026 were also “significantly lower” than in July 2022, the last summer the region saw extreme drought, with “exceptional to record deficits” for rain and soil moisture in France, Spain and parts of Germany and the United Kingdom, the scientists found.The record-breaking summer heat has fostered conditions for Europe’s record-setting wildfires, which have displaced hundreds of thousands of people and burned more than 1.23 million acres of land, mainly in Spain, France and Italy, according to an August 6 report by the EU.Beyond the scorched land, the fires have also had a broader effect across the continent, increasing emissions and disrupting air quality, said Laurence Rouil, director of the Copernicus Atmosphere Monitoring Service.“Larger fires produce more smoke and inject it higher into the atmosphere, meaning it can travel further and impact air quality not only locally, but across the wider region,” Rouil said.Severe droughts have also sucked the water from Europe’s major rivers, particularly the Seine, the Rhine and the Danube, threatening the continent’s energy supply.Hungary and Romania were forced to temporarily shut down nuclear reactors cooled by the Danube, Europe’s second-longest river, which has experienced such low water levels that the crisis can be observed from space.Richard Allan, a climate science professor at the University of Reading in England previously told CNN the these record river lows are likely to be broken again in the future and that this “will only be the top of the iceberg.”“Managing water resources will become progressively more challenging.”The-CNN-Wire™ & © 2026 Cable News Network, Inc., a Warner Bros. Discovery Company. All rights reserved.
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