US economic growth remains on track to post a modestly stronger increase in the second quarter compared with Q1, according to the median nowcast from a set of estimates compiled by CapitalSpectator.com. Despite heightened inflation risks stemming from the Middle East energy shock, output appears relatively resilient so far for GDP in the current quarter.Today’s update of the median Q2 nowcast indicates real (inflation-adjusted) growth of 2.4%, moderately above Q1’s 2.0% advance. If accurate, the Q2 report (scheduled for July) will reflect a continued, albeit modest, recovery following the weak gain in Q4.Today’s estimate is slightly above the previous median nowcast: 2.2%, published on May 11.Economists at the Royal Bank of Canada write: “The energy shock isn’t likely to trigger a US recession in 2026,” noting that “the set of indicators used by the National Bureau of Economic Research to identify recessions is not flashing red. Yes, some segments suggest caution, but more recent data—including payroll growth, industrial production, and retail sales—are accelerating, while the unemployment rate is holding steady.”The main caveat is that it is still early to fully assess the inflation risk from the supply‑side energy shock, which continues to reverberate across the global and US economies.Minutes from the most recent Federal Reserve policy meeting reveal that a majority of Fed officials discussed the possibility of interest rate hikes if the Iran war continued to raise inflation.Although members of the Federal Open Market Committee differed on how long the conflict might last and how much inflation risk it could pose, “a majority of participants highlighted, however, that some policy firming would likely become appropriate if inflation were to continue to run persistently above 2 percent.”Last week’s consumer inflation report for April showed a second consecutive month of hotter pricing pressure. Headline CPI’s year‑over‑year increase accelerated to 3.8%, a three‑year high and further above the Fed’s 2% inflation target.Inflation is expected to rise further, according to a survey of economists published by the Philadelphia Fed last week. Headline CPI is projected to briefly spike to 6.0% in the second quarter before easing later in the year.If the Fed raises interest rates to combat inflation, the policy shift could create a new headwind for the economy. So far, those headwinds appear mild, based on cuerrent headline GDP estimates for Q2. But with Gulf energy exports still blocked, and no resolution expected in the immediate future, the extent of inflation risk—and how the economic effects will unfold in the months ahead—remains uncertain.Original Post