New government data shows US GDP growth slowed to 1.4% in the final quarter, dampening momentum after an otherwise turbulent year.
WASHINGTON β US Economy Cools More Than Expected
The US economy slowed significantly in the final months of 2025, with gross domestic product (GDP) growing at an annualized rate of just 1.4% in the fourth quarter, according to new figures released Friday. The data marks a pronounced deceleration from stronger growth earlier in the year and comes in well below economistsβ projections.
This weakness capped a turbulent year for the American economy, which faced a 44-day federal government shutdown, rising tariffs, slowing consumer demand and ongoing uncertainty around monetary policy.
While the full-year growth rate remained positive at 2.2% for 2025, that figure itself was lower than the 2.8% expansion recorded in 2024, underscoring a broader economic cooling trend.
Drivers of the Slowdown: Shutdown, Tariffs and Trade
Historic Government Shutdown:
The longest shutdown in US history, which extended from early October into November, delayed key economic data releases and disrupted federal services, holding back government spending β a direct component of GDP.
President Donald Trump publicly blamed the shutdown for a substantial portion of the slowdown, arguing it cost the economy βat least two points in GDPβ. Federal data releases were postponed because many government employees were furloughed, further complicating economic measurement and analysis.
Trade Imbalances and Tariffs:
Imports surged toward the end of the year, widening the US trade deficit and dragging on growth. Higher tariffs on imported goods have raised costs for American consumers and companies alike, tempering demand for domestic production and fostering volatility in global supply chains.
Consumer Spending Moderates:
While consumer spending β which accounts for roughly two-thirds of US economic activity β continued to expand, the pace slowed compared with earlier quarters. This deceleration reflects rising living costs, weak wage growth for many households and reduced confidence among lower- and middle-income consumers.
Why It Matters: Markets and the Fed
The slowdown has immediate implications for both financial markets and policymakers, especially the Federal Reserve, which has maintained elevated interest rates to combat inflation.
Economists had forecast a much stronger 2.9% expansion for the fourth quarter, but persistently weak data has renewed speculation that the Fed may eventually shift toward rate cuts if growth continues to lag.
Slowing GDP growth, when paired with stable or rising inflation, presents a challenging mix for policymakers: cutting interest rates could spur growth, but doing so too soon risks rekindling price pressures. Sterling economic performance earlier in the year has given the Fed more room to maneuver, but subdued expansion in the final months has accentuated the debate on future policy direction.
Jobs, Wages and the βK-Shapedβ Recovery Pattern
Despite slower overall growth, some economic indicators remain resilient. Inflation has continued to moderate, and the unemployment rate stayed near historically low levels. Consumer prices, measured through core indexes like the Personal Consumption Expenditures (PCE), have shown signs of easing, though not uniformly across all sectors.
However, the recovery appears uneven β sometimes described by economists as a βK-shapedβ pattern β where wealthier households and high-income earners see continued spending and investment growth, while lower-income families face stagnant wages, rising debt burdens and slower job creation.
Analysts note that business investment in technology, especially artificial intelligence and information processing equipment, helped offset some of the weakness in consumer demand and government spending, pointing to pockets of strength in the broader economic picture.
Political and Policy Fallout
The slowdown in growth also has political ramifications. Critics of the current administration argue that economic management β particularly around the government shutdown and tariff policies β contributed to the weaker performance. Supporters counter that the broader economy remains fundamentally healthy, pointing to low unemployment and ongoing private sector demand.
The impact of federal shutdowns is not limited to GDP figures; prolonged stoppages can erode consumer and business confidence, delay infrastructure projects and disrupt social safety net programs β effects that may linger well beyond their official end dates.
Looking Ahead: What Analysts Say
Economists forecasting future performance are divided. Some maintain that slower growth is a temporary correction following robust expansion earlier in 2025, buoyed by strong consumer demand and business investment. Others warn that structural challenges, including rising national debt and global trade frictions, could depress potential growth for years.
Several major financial institutions and research groups have suggested that the economy could maintain moderate growth well into 2026, supported by innovation and pent-up investment β though they caution that continued uncertainty could temper expectations.
