The US economy grew by a modest 2% in the first quarter of 2026, despite the Iran war resulting in a slowdown in consumer spending. The federal government's spending and investment grew at a 9.3% annual rate, contributing more than half a percentage point to growth. Consumer spending, which accounts for 70% of US economic activity, decreased to 1.6% in Q1 from 1.9% at the end of 2025. However, business investment, likely driven by AI spending, rose at an 8.7% pace. Despite this, the Federal Reserve has kept its benchmark interest unchanged due to the conflict. The conflict has led to energy prices higher, inflation and negatively impacted consumers.