US GDP Slows to 1.6%, PCE Inflation Hits 3.8%, Stirring Stagflation Fears

The U.S. economy flashed stagflation warnings Thursday, May 28, 2026, as first-quarter GDP growth was revised down to a 1.6% annualized rate from 2%, while the April personal consumption expenditures price index rose 3.8% year-over-year — the fastest since May 2023. Core PCE, stripping out food and energy, climbed 3.3% and roughly matched forecasts. “We are facing a stagflation problem,” said Peter Cardillo, chief market economist at Spartan Capital Securities, citing the simultaneous growth slowdown and persistent inflation. That combination complicates the Federal Reserve’s policy path, lifting market expectations for further rate hikes rather than cuts. Energy prices, driven by the U.S.-Iran conflict and robust AI-related infrastructure spending, are amplifying cost pressures even as consumption and tech investment support growth. Edward Jones senior strategist Angelo Kourkafas noted that while the inflation data didn’t upend the narrative, the real market driver remains oil price volatility and geopolitical tensions. Some analysts suggested the slightly cooler core reading and weaker GDP could rebuild hopes for looser policy, but the outlook remains clouded by supply-side inflation risks.