WASHINGTON, D.C. — The Commerce Department reported Thursday that U.S. gross domestic product grew at an annualized 2% rate in the first quarter of 2026. The figure marked an increase from the 0.5% growth rate recorded in the previous quarter.

Personal consumer spending rose at an annual rate of 1.6% during January, February and March, while domestic investment grew by 6.4%. Tax refunds were on average about $330 larger during the first quarter of 2026 than during the same period a year earlier. Thursday's report was the first of three estimates the Commerce Department will issue for first-quarter GDP.

Federal government spending and investment grew at a 9.3% annual rate in the first quarter, contributing more than half a percentage point to GDP growth. Overall government spending increased by 4.4%, a reversal from the 5.4% contraction recorded in the fourth quarter of 2025. The federal government workforce decreased by 355,000 employees, or 11.8%, since October 2024.

The report arrived as global oil prices reached $126 a barrel on Thursday, a four-year high. Annualized inflation rose by nearly one percentage point to 3.3% in March 2026, and consumer inflation expectations increased from 3.8% in March to 4.7% in April 2026.

The Federal Reserve kept its benchmark interest rate unchanged, citing "a high level of uncertainty" arising from the conflict with Iran. At a press conference, outgoing Federal Reserve Chair Jerome Powell said he supports the central bank's "hold and wait" strategy to assess the effects of the Iran war and new tariffs on the economy. "The institution is being battered over these things," Powell said.