The U.S. economy's growth slowed significantly in the second quarter of this year even while inflation continued to increase, the Commerce Department reported Friday. The nation's gross domestic product (GDP) grew at an annual rate of just 2.5 percent in the April-to-June period—a major decline from the 5.6 percent rate in the January-to-March quarter, the department said. The major cause of the slowdown was higher interest rates, which triggered a decline in consumer spending, as well as a massive drop in new home construction. GDP is the value of all goods and services produced. The 2.5 percent pace was the slowest since Hurricane Katrina devastated the Gulf Coast last summer, when growth fell to 1.8 percent. At the same time, core price inflation soared to a 2.9 percent annual rate in the second quarter, the department said. That figure excludes food and energy costs, making the latest inflation reading well beyond the acceptable level for the Federal Reserve. The Fed, which has raised interest rates for 17 consecutive months to their current level of 5.25 percent, may continue to raise rates in a bid to fight inflation. However, Federal Reserve Chairman Ben Bernanke told Congress last week that the Fed believes the slowing economic will eventually reduce inflation. U.S. stock markets reacted favorably to the latest news, with the Dow Jones industrial average making triple digit gains in early morning trading.
