The U.S. economy accelerated in the second quarter as consumers ramped up spending and businesses invested more on equipment, but persistent sluggish wage gains cast a dark shadow over the growth outlook.
Gross domestic product increased at a 2.6 percent annual rate in the April-June period, which included a boost from trade, the Commerce Department said in its advance estimate on Friday. That was more than double the first quarter's downwardly revised 1.2 percent growth pace.
There was, however, little inflation in the economy in the second quarter and wage growth decelerated despite a tightening labor market. That could put the Federal Reserve in a tight spot as it looks to raise interest rates one more time this year.
Prices of U.S. government debt rose after the release of the data while the dollar initially fell against a basket of currencies. U.S. stock index futures pared losses slightly.
"Although growth is solid, the lack of wage pressure buys the Fed plenty of time, and works with a very 'gradual' tightening cycle," said Alan Ruskin, global head of G10 FX strategy at Deutsche Bank in New York. "There is more here for the Fed doves than the hawks."
Economists expect the Fed to announce a plan to start reducing its $4.2 trillion portfolio of Treasury bonds and mortgage-backed securities in September.
The U.S. central bank left rates unchanged on Wednesday and said it expected to start winding down its portfolio "relatively soon."
The rise in second-quarter GDP was in line with economists' expectations. The economy was previously reported to have grown at a 1.4 percent pace in the first quarter.
The economy grew 1.9 percent in the first half of 2017, making it unlikely that GDP would top 2.5 percent for the full year. President Donald Trump has set an ambitious 3.0 percent growth target for 2017.
While the Trump administration has vowed to cut corporate and individual taxes as part of its business-friendly agenda, Republicans' struggles in Congress to pass a healthcare restructuring have left analysts skeptical on the prospects of fiscal stimulus. So far, the impasse in Washington has not hurt either business and consumer confidence.