Shutdown Sting: Q4 Growth Sputters to 1.4% as Inflation Stays Stubborn at 3%

With input from the New York Times, CNBC, CNN, the Financial Times, and the Bureau of Economic Analysis.

US growth cooled sharply at the end of 2025 – gross domestic product posted just a 1.4% annualized gain in the fourth quarter, the Commerce Department said Friday, a big miss versus the Dow Jones forecast of about 2.5%.

Short version: the economy didn’t collapse, but it definitely slowed. The Commerce Department and the release’s authors estimate that the record-length federal government shutdown sliced roughly 1 percentage point off Q4 growth. Add slower consumer outlays and weaker exports, and you’ve got the recipe for a weaker headline number.

Key takeaways

• Real GDP (advance estimate): +1.4% annualized for Q4 — well under the expected ~2.5%.
• Shutdown hit: officials estimate roughly -1.0 percentage point was knocked off growth.
• Inflation: the Fed’s favorite gauge, the core PCE price index, rose 3.0% year-over-year in December (headline PCE +2.9%).
• Full-year growth for 2025: +2.2%, down from 2.8% in 2024.

Consumer spending and business investment still did some heavy lifting, but government spending plunged – federal outlays fell sharply during the funding lapse – and exports cooled. The report flagged an uptick in investment, led by intellectual property and equipment, but it wasn’t enough to offset the shutdown drag and the consumer slowdown.

“The federal government shutdown clearly sent the economy off its strong growth path in the fourth quarter – a one-off that won’t be repeated in early 2026,” said Chris Rupkey.

Prices are holding firm. The personal consumption expenditures measure that the Federal Reserve watches showed core inflation at 3% year over year in December – a reminder the Fed’s 2% target is still a ways off. On a monthly basis, PCE and core PCE each rose 0.4% in December, with both goods and services contributing to the move.

That persistence in prices helps explain why the Fed has been cautious about easing policy even after cutting rates late in 2025.

Economic forecasters expect much of the shutdown’s lost activity will be recouped in early 2026, so a bounce-back quarter isn’t out of the question. Still, the combination of softer headline GDP and sticky inflation presents a tricky backdrop: growth is slowing, but price pressures haven’t cooled enough to give the Fed clear cover to ease further.

The Commerce Department also noted the Q4 estimate was the advance reading; more detailed revisions are due in March and April. The release itself was delayed from late January because of the shutdown – a tidy symptom of how the government lapse tangled with economic data and policy decisions.

Bottom line: the US economy kept growing in Q4, but not by much – and with inflation still running around 3%, policymakers and markets have something to watch closely as the year gets underway.