U S GDP Slows to 1 4% in Fourth Quarter as Inflation Holds at 3%
The U.S. GDP fourth quarter 2025 report showed slower-than-expected growth, while inflation remained above the Federal Reserve’s target, adding new uncertainty to the economic outlook.
According to the U.S. Department of Commerce, the economy grew at an annualized rate of 1.4% in the final three months of 2025. Economists had expected growth closer to 2.5%. For the full year, GDP expanded 2.2%, down from 2.8% in 2024.
A lengthy federal government shutdown weighed heavily on the quarter. Government spending and investment fell 5.1%, with federal spending down more than 16%. Officials estimate the shutdown alone may have reduced growth by about one percentage point.
Consumer spending also slowed, rising 2.4% compared to 3.5% in the prior quarter. Exports declined after a strong third quarter, contributing to the weaker headline number.
However, private sector demand showed resilience. Final sales to private domestic purchasers increased 2.4%, and business investment rose 3.8%, suggesting underlying momentum remains intact.
At the same time, inflation remains firm. The core personal consumption expenditures index — the Fed’s preferred gauge — rose 3% year over year in December, still above the central bank’s 2% target.
This combination of slower growth and sticky inflation puts policymakers in a difficult position. While rate cuts could support the economy, inflation has not yet cooled enough to guarantee a shift in policy.
As 2026 begins, the economy is still expanding — but at a more moderate pace, with inflation pressures continuing to complicate the outlook.
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