Fourth-Quarter U.S. GDP Up Just 1.4%, Inflation Firms at 3%

• U.S. growth slowed more than expected near the end of 2025 as the government shutdown impacted spending and investment, while a key inflation metric showed high prices are still a factor for the economy.
• Gross domestic product (GDP) rose at an annualised rate of just 1.4%, according to the Commerce Department, well below the Dow Jones estimate for a 2.5% gain. Consumer spending increased at a slower pace for the period while government spending tumbled sharply in a quarter marked by the record-length shutdown. The department estimated that the shutdown subtracted about 1 percentage point from growth, though it added that the exact impacts “cannot be quantified.”
• For the full year in 2025, the U.S. economy grew at a 2.2% pace, down from the 2.8% increase in 2024. “The Federal government shutdown clearly sent the economy careening off its strong growth path in the fourth quarter which is a one-off that won’t be repeated in early 2026,” said Chris Rupkey, chief economist at Fwdbonds. Just before the data release, President Donald Trump warned that the GDP number would be soft, blaming it on the government shutdown that ended in November 2025.
• While growth slowed, inflation held firm in December 2025, according to the gauge most closely watched by Fed officials. The core personal consumption expenditures price index (PCE index), which excludes food and energy, rose 3% in December 2025, up 0.2 percentage point from November 2025, according to a separate release. That matched the consensus forecast but kept the pivotal inflation measure well above the Fed’s 2% target. On a headline basis, the PCE index accelerated 2.9%, or 0.1 percentage points higher than expected.
• On a monthly basis, goods prices climbed 0.4% while services increased 0.3%, indicating that price pressures remained relatively broad-based rather than concentrated in any single category. Fed policymakers have been watching that balance closely to see whether inflation is being spurred by temporary tariff-related pressures that would hit goods, or more fundamental demand-driven factors that would show up in services.
• While Trump blamed the shutdown, the Commerce Department said the deceleration in GDP, which grew at a 4.4% rate in the third quarter, was the result in a pullback in consumer spending and exports, as well as the impact from the government closure that ran from Oct. 1, 2025 to Nov. 12, 2025. Personal consumption expenditures, a proxy for consumer outlays, rose 2.4% in the quarter, down from the 3.5% gain in the prior period. Exports fell 0.9% after surging 9.6% in Q3.

(Source: CNBC)