[BUG] Background process output in VScode terminal does NOT show most recent output

Preflight Checklist

• [x] I have searched existing issues and this hasn't been reported yet
• [x] This is a single bug report (please file separate reports for different bugs)
• [x] I am using the latest version of Claude Code

What's Wrong?

<img width="510" height="213" alt="Image" src="https://github.com/user-attachments/assets/4215a4ae-3902-4452-9169-0d81e730689d" />
When viewing the background process status in vscode terminal (down arrow), it shows me the FIRST ten lines of output, and the more recent output gets truncated. This makes this view useless for monitoring process progress and output. I feel like this worked a few days ago but no longer works.

What Should Happen?

The background process subterminal should show the most recent output as intended, not the initial output

Error Messages/Logs

Steps to Reproduce

1. Ask claude to launch a background task in bash
2. Click the "down arrow" to monitor the task progress
3. In many cases, the output does not "scroll" to show the new lines, it just shows the first 10 and truncates everything more recent.

Claude Model

Opus

Is this a regression?

Yes, this worked in a previous version

Last Working Version

_No response_

Claude Code Version

2.1.37

Platform

Anthropic API

Operating System

macOS

Terminal/Shell

VS Code integrated terminal

Additional Information

_No response_