US economic growth slows sharply in the fourth quarter

Recent economic data indicates a slowdown in U.S. Economic growth during the final quarter of last year. The Commerce Department’s advance estimate for the fourth quarter of 2025 revealed a growth rate of 1.4%, a significant decrease from the 4.4% recorded in the third quarter.

Economic Slowdown and the “K-Shaped” Recovery

This deceleration was lower than anticipated by economists. The slowdown coincided with a 43-day government shutdown and a moderation in consumer spending. The data also highlighted a “K-shaped” economic recovery, where upper-income households are faring well while lower-income consumers face challenges due to high inflation and limited wage growth.

Did You Know? The report detailing fourth-quarter GDP growth was delayed due to a record 43-day government shutdown.

Inflationary Pressures Remain

Adding to the economic concerns, underlying inflation increased more than expected in December. The personal consumption expenditures price index, excluding food and energy, rose by 0.4% in December. This brought the annual core PCE rate to 3%.

Economists estimate that core PCE inflation could further increase to 3.1% in January. The U.S. Federal Reserve has a target inflation rate of 2%.

Expert Insight: The persistence of inflation, even excluding volatile components like food and energy, suggests that bringing inflation down to the Federal Reserve’s target may require sustained economic adjustments. The “K-shaped” recovery further complicates the situation, indicating uneven economic impacts across different income levels.

What Could Happen Next

Given these economic conditions, the Federal Reserve may be less inclined to lower interest rates in the near future. Data suggests the Federal Reserve may not lower interest rates before June. Continued inflationary pressures could lead to further adjustments in monetary policy. A sustained slowdown in economic growth could also impact consumer confidence and spending habits.

Frequently Asked Questions

What was the U.S. GDP growth rate in the fourth quarter?

The U.S. GDP grew at an annualized rate of 1.4% in the fourth quarter.

What is a “K-shaped” economy?

A “K-shaped” economy is one where upper-income households are doing well, while lower-income consumers are struggling.

What was the core PCE inflation rate in December?

The core PCE inflation rate was 3% in December.

How might these economic trends affect your household budget and financial planning?