The U.S. economy grew at an annualized rate of 2 percent during the first quarter of 2026, according to the Bureau of Economic Analysis.

The agency attributed the growth to increases in investment, exports, consumer spending and government spending. Growth in Q4 2025 was 0.5 percent.

The labor market has also shown gains recently, with the economy adding 115,000 jobs in April following 185,000 in March, the Bureau of Labor Statistics reported. Notwithstanding the first back-to-back months of gains in a year, some analysts offered a skeptical take.

“Labor demand and supply remain in an uneasy balance … and labor market conditions could weaken again swiftly as financial pressures from rising prices weigh on household purchasing power,” the chief U.S. economist at BMO Capital Markets told Reuters. “There is nothing in this report to move the Fed off ​the sidelines on future rate cuts.”

Not only is the Federal Reserve declining to cut interest rates, but, as The Wall Street Journal reported in early May, members of the Federal Open Market Committee (FOMC) “are starting to talk about the conditions that would warrant a hike.” Dallas Fed President Lorie Logan, for example, said it “could plausibly be appropriate for the … next rate change to be either an increase or a cut.”

The Federal Reserve reduced the target range for the federal funds rate – which is now 3.5 to 3.75 percent – by a quarter-point three meetings in a row at the end of 2025, but it has made no changes since December.

A hike would surely draw criticism from President Trump, who now has his choice for Fed chair – Kevin Warsh – in place. Previous chair Jerome Powell, who served from 2018 until May of this year and was frequently criticized by Trump for not supporting enough rate cuts – remains a voting member of the FOMC.

Consistently elevated inflation has made the case for interest rate reductions more difficult to make. The consumer price index in April showed price increases of 3.8 percent over the previous year – the highest since April 2023 – including 54.3 percent for fuel oil and 17.9 percent for all energy goods, according to the Bureau of Labor Statistics.

Energy costs are being pushed up, at least in part, by the war in Iran, with that country still effectively closing the Strait of Hormuz – through which about 20 percent of the world’s oil transits – while negotiations continue during a cease fire.

The Fed’s target inflation rate is 2 percent, and during the central bank’s April 28-29 meeting, there was some pessimism about reaching that target – which has not been met since February 2021 – anytime soon.

“Almost all participants noted that there was a risk that the conflict in the Middle East could persist for an extended period or that, even after the conflict ended, the prices of oil and other commodities could remain elevated for longer than expected,” the minutes of the meeting recorded. “In such scenarios, these participants expected continued upward pressure on inflation arising from supply chain disruptions, high energy prices, or the pass-through of higher input costs to other prices. The vast majority of participants noted an increased risk that inflation would take longer to return to the Committee’s 2 percent objective than they had previously expected.”

Tariffs implemented by Trump are also a factor, and a Federal Reserve analysis released in April found “strong evidence that tariff changes in 2025 have raised core goods prices.”

“Under our baseline estimates, tariff changes through November 2025 raised core goods PCE [personal consumption expenditures] prices cumulatively by 3.1% through February 2026, explaining the entirety of excess inflation in the core goods category relative to pre-pandemic inflation rates and boosting core PCE prices as a whole by 0.8 percent.”

Amid the higher prices, consumer confidence appears to be slipping. The Index of Consumer Sentiment from the University of Michigan’s Surveys of Consumers fell 10 percent from April to May, the third straight monthly decline, with the surveys’ director noting that “cost of living continues to be a first-order concern, with 57% of consumers spontaneously mentioning that high prices were eroding their personal finances, up from 50% last month.”

The Consumer Confidence Index from The Conference Board dipped less than 1 percent from April to May.

“Consumers’ write-in responses on factors affecting the economy continued to skew towards pessimism in May,” the organization reported. “References to prices and oil and gas increased in frequency for a second consecutive month, while mentions of war, geopolitics and conflict remained elevated – likely signaling consumers’ underlying concerns about the inflationary impacts of the war in the Middle East on their wallets.”

Confidence among manufacturers held steady in April and has now been at a level indicating expansion in the sector four months in a row – following eight months below it – according to the Institute for Supply Management’s Purchasing Managers Index. Concerns about Iran and tariffs, however, remain.

“In this second month of the Iran War (at the time of data collection), 31 percent of the comments were positive and 69 percent negative, with a positive to negative sentiment ratio of 1 to 2.2,” the chair of the institute’s Manufacturing Business Survey Committee said. “Among comments, the war was mentioned in 47 percent and tariffs in 18 percent. As was the case last month, some panelists referenced both topics within a single comment or in mixed sentiment.”

Housing starts in April declined 2.8 percent from March but were 4.6 percent above the April 2025 level, according to the Census Bureau and the Department of Housing and Urban Development. Existing home sales were largely unchanged from March to April, increasing by 0.2 percent, the National Association of Realtors reported.

“Despite mixed macroeconomic signals – including a record-high stock market and historically low consumer confidence – home sales were modestly boosted by the continued improvement in housing affordability,” the association’s chief economist said. “Mortgage rates are lower from a year ago, and average income growth is outpacing home price gains.”

The Dow Jones Industrial Average closed at 50,579.7 on May 22, up 5.24 percent on the year. The S&P 500 Index ended the day at 7,473.47, for a year-to-date gain of 9.17 percent.

The dollar on May 22 was trading at 0.86 euros, 0.74 pounds, 159.03 yen and 6.8 yuan.