GDP growth slows and PCE inflation is stubborn as Fed rate cut hopes dim

The likelihood of different Federal Reserve complaint involvement chopped fell connected Friday morning, aft cardinal reports connected GDP and inflation. First, the GDP study showed that the U.S. system slowed beauteous dramatically astatine the extremity of 2025, successful portion due to the fact that of the record-long authorities shutdown. On an annualized basis, GDP maturation fell to 1.4% successful the 4th quarter, from 4.4% successful the 3rd quarter. Economists had broadly expected fourth-quarter GDP to travel successful astatine 3%, truthful Friday's study landed with an antithetic thud.

For the afloat year, GDP maturation came successful astatine 2.2%, down from 2.8% successful 2024.

Declines successful authorities spending had overmuch to bash with the disappointing numbers. Federal spending fell astatine a 5.1% annualized rate, and the BEA estimates that the October-November authorities shutdown unsocial knocked astir a afloat percent constituent disconnected Q4 growth. Exports besides fell arsenic commercialized uncertainty dominated.

When the authorities stopped spending, backstage home request — a metric that reflects what American consumers and businesses were doing — mostly held up, increasing 2.4% successful the quarter, lone somewhat slower compared with the third-quarter numbers.

Consumers kept spending, chiefly connected services specified arsenic wellness attraction and travel, alternatively than user goods. Business concern ticked higher, with the astir notable gains possibly unsurprisingly concentrated successful “information processing equipment” — that is, AI-related infrastructure.

Friday’s PCE study likewise brought mixed news. Inflation came successful astatine 2.9% for the quarter, and halfway PCE — which does not see nutrient and vigor — came successful astatine 2.7%. On a monthly basis, halfway PCE roseate 0.4% successful December, putting the year-over-year complaint astatine 3.0%. That whitethorn not beryllium the scariest fig analysts person seen successful caller years, but it does suggest ostentation is live and kicking.

In all, it’s a acceptable of numbers that means it’s little apt that the Federal Reserve volition little rates adjacent month.

“Taken together, the information fits the brushed landing narrative: maturation is slowing but inactive positive, and ostentation is easing but not collapsing,” said Daniela Hathorn, a elder expert astatine Capital.com. “It supports the thought that the Federal Reserve tin stay diligent alternatively than pivot aggressively. The system appears to beryllium decelerating successful an orderly fashion, reducing overheating risks without triggering a crisp downturn. However, the somewhat firmer ostentation prints whitethorn temper expectations of accelerated complaint cuts successful the adjacent term.”

Shortly earlier the reports were released Friday, President Donald Trump posted a request connected Truth Social for “LOWER INTEREST RATES,” on with a acquainted onslaught connected Fed Chair Jerome Powell: “‘Two Late’ Powell is the worst!!!”