Fourth-quarter U.S. GDP up just 1.4%, badly missing estimate; inflation firms at 3%
Why it matters: The weaker-than-expected growth coupled with persistent inflation raises concerns about a potential policy error by the Federal Reserve, potentially leading to increased market volatility and a reassessment of investment strategies.
- U.S. GDP growth slowed to 1.4% in Q4, far below the expected 2.5%, with the Commerce Department attributing about 1 percentage point of the shortfall to the government shutdown.
- President Trump blamed the 'Democrat Shutdown' for the GDP miss and criticized Fed Chair Powell for not lowering interest rates aggressively enough, while Chris Rupkey of Fwdbonds sees the shutdown impact as a one-off event.
- The core PCE price index, the Fed's preferred inflation gauge, remained elevated at 3%, exceeding the Fed's 2% target and signaling persistent inflationary pressures despite the economic slowdown, driven by both goods and services.
U.S. GDP growth sharply decelerated to 1.4% in Q4 2025, significantly missing estimates due to a government shutdown and slowing consumer spending, while inflation remained stubbornly high at 3%. This stagflationary signal complicates the Federal Reserve's policy outlook, as it balances inflation concerns with potential economic weakness.
