Economic growth in the United States slowed sharply at the end of 2025 while inflation remained elevated entering the new year, according to updated government data.
The revised figures from the Bureau of Economic Analysis showed that gross domestic product increased at an annualized rate of just 0.7 percent during the fourth quarter.
That reading was far lower than the earlier estimate of 1.4 percent and well below the 1.5 percent growth expected by economists surveyed by Dow Jones.
The latest update highlights growing concerns about the strength of the U.S. economy heading into 2026.
Government Shutdown Weighed on Economic Activity
The slowdown marked a major drop from the previous quarter, when the economy expanded at a much stronger 4.4 percent pace.
A key factor behind the weaker fourth quarter performance was a lengthy government shutdown that significantly reduced federal spending.
Government expenditures declined by 16.7 percent during the period, contributing heavily to the downgrade in overall growth.
Economists said the reduction in government activity created a substantial drag on economic output.
Consumer Spending Growth Also Slowed
Consumer spending, which represents the largest driver of economic activity in the United States, also expanded at a slower pace.
Spending rose 2 percent in the fourth quarter, which represented a downward revision compared with earlier estimates.
This increase was well below the 3.5 percent growth recorded during the third quarter.
The revision was largely attributed to weaker spending on services, particularly health care, according to the government report.
Adjustments to government spending, exports, and consumer activity all contributed to the lower GDP reading.
Full-Year Growth Moderated in 2025
Despite the slowdown late in the year, the overall U.S. economy still expanded in 2025.
Gross domestic product increased 2.1 percent for the full year, slightly lower than the earlier estimate.
The figure also represented a modest decline from the 2.8 percent growth recorded in 2024.
While the economy continued to grow, the slower pace indicates that economic momentum weakened toward the end of the year.
Inflation Remains Above Federal Reserve Target
At the same time, inflation data for January showed that price pressures remain higher than policymakers would prefer.
The personal consumption expenditures price index, which the Federal Reserve closely monitors, rose 0.3 percent for the month.
On an annual basis, the overall PCE inflation rate reached 2.8 percent.
Economists had expected similar numbers, though the reading still sits above the Fed’s target inflation rate of 2 percent.
Core Inflation Shows Continued Pressure
When excluding volatile food and energy prices, core PCE inflation rose even faster.
Core prices increased 0.4 percent during January and reached 3.1 percent compared with a year earlier.
This figure was slightly higher than the December reading and suggests that underlying inflation pressures remain persistent.
Policymakers often focus on the core measure because it provides a clearer view of long term inflation trends.
Durable Goods Orders Show Weak Business Activity
A separate report from the Commerce Department also pointed to weaker economic momentum early in 2026.
Orders for durable goods such as appliances, transportation equipment, and computers were unchanged in January.
Economists had expected a 1.3 percent increase for the month.
However, excluding transportation equipment, durable goods orders rose 0.4 percent, suggesting modest demand in some sectors.
Oil Prices and Geopolitical Tensions Add Risk
Although the economic data largely reflects conditions before recent geopolitical developments, analysts warn that the outlook could shift quickly.
Energy prices have surged since the United States and Israel launched attacks against Iran in late February.
The conflict has raised concerns about disruptions to global oil supplies.
International benchmark crude prices recently approached $100 per barrel before easing slightly.
Higher oil prices often push inflation higher by raising transportation and production costs across the economy.
Federal Reserve Faces a Difficult Policy Balance
The combination of slower economic growth and persistent inflation presents a difficult challenge for policymakers.
Some economists warn that the United States could face conditions similar to stagflation, where growth slows while inflation remains elevated.
Recent economic reports suggest inflation pressures were already problematic even before energy markets surged.
Because of these conditions, analysts believe the Federal Reserve may be reluctant to cut interest rates anytime soon.
Financial markets currently expect the central bank to leave rates unchanged at its upcoming policy meeting.
According to market data tracked by CME Group, investors see almost no chance of an immediate rate cut.
The US GDP fourth quarter revision therefore provides a snapshot of an economy entering 2026 with slower growth and persistent inflation pressures.
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