The U.S. economy faced a mix of challenges in March as inflation surged and economic growth slowed, according to government reports released Thursday. The core personal consumption expenditures (PCE) price index, which excludes food and energy, rose 0.3% for the month, pushing the 12-month inflation rate to 3.2%, the highest since November 2023. Including volatile gas and grocery prices, the monthly gain was 0.7%, with the annual rate hitting 3.5%. Meanwhile, gross domestic product (GDP) grew at a 2% annualized pace in the first quarter, below the 2.2% estimate and up from 0.5% in the fourth quarter of 2025. The Labor Department reported that initial jobless claims fell to 189,000 for the week ended April 25, the lowest since September 1969.
Economic Growth and Inflation Trends
The Commerce Department's data showed that while GDP growth improved from the previous quarter, it remained below expectations. The modest growth came despite increased spending on artificial intelligence and the end of last year's government shutdown. The Federal Reserve's preferred inflation gauge, the PCE index, rose sharply due to the Iran war's impact on energy prices. Crude oil prices soared to $120 a barrel, driving gas prices above $4 nationwide. Core inflation, which strips out food and energy, rose 3.2% annually, while the broader PCE index hit 3.5%, the highest since May 2023.
Federal Reserve's Response
The Federal Open Market Committee (FOMC) voted to hold interest rates steady at a range of 3.50%-3.75% on Wednesday, marking the last meeting for Chairman Jerome Powell before his term ends. The Fed has not cut rates in 2026, following three reductions in 2025. Powell announced he will remain on the Fed's Board of Governors beyond his term as chairman. The Fed's goal of 2% annual inflation has not been achieved since early 2021.
Economic Sentiment and Political Impact
The inflation data comes amid record-low consumer sentiment and disapproval of President Donald Trump's handling of the economy. Analysts noted a 'split-screen economy,' with AI-driven sectors thriving while middle-income households struggle with high gas prices and inflation. The data raises questions about the Fed's next steps as inflation remains above target and economic growth lags expectations.