The U.S. economy rebounded in the first quarter of 2026, with gross domestic product growing at a 2% annual rate, according to the Commerce Department. This marks a significant recovery from the weak 0.5% expansion recorded in the final three months of 2025, which was heavily impacted by a 43-day government shutdown.
Government spending and investment surged at a 9.3% annual rate in Q1, contributing more than half a percentage point to overall growth. Consumer spending, which accounts for about 70% of U.S. economic activity, grew at a slower 1.6% annual rate, down from 1.9% in the previous quarter. However, business investment saw a sharp rise of 8.7%, largely driven by the artificial intelligence spending boom.
Housing remained a drag on the economy, with residential investment falling at an 8% annual rate for the fifth consecutive quarter. Imports surged 21.4%, cutting more than 2.6 percentage points from first-quarter growth.
The report covers a period that includes roughly one month of fighting in Iran. Iran's blockade of the Strait of Hormuz—through which about a fifth of the world's oil and gas flows—has pushed energy prices higher, feeding inflation and squeezing consumers.
Federal Reserve Chair Jerome Powell, speaking at his final press conference, described the economy as "quite resilient" in the face of the energy shock. "Growth is really solid across our economy," Powell said. "Some of it is just the apparently insatiable demand for data centers all over the United States." The Fed kept its benchmark interest rate unchanged at 3.50%–3.75%, citing high uncertainty from the Middle East conflict.
The International Monetary Fund, which completed its annual review of the U.S. economy in April, expects GDP growth to reach 2.4% in 2026 but warned that the Fed has little room to cut rates this year due to rising energy prices and tariff passthrough. The IMF also flagged long-term fiscal risks, with general government deficits projected to remain at 7%–7.5% of GDP and debt potentially exceeding 140% of GDP by 2031.
