US GDP slows to 1.4% in Q4 as shutdown hits; core PCE firms

Key Takeaways:

• GDP slowed to 1.4% in Q4 after Q3’s 4.4% surge.
• Late-quarter cooling followed a strong summer rebound, weakening the headline.
• Sticky core PCE complicates Fed cuts amid slower growth, raising stagflation fears.

U.S. growth downshifted sharply at year‑end, with real GDP expanding at a 1.4% annualized pace in Q4 2025, down from 4.4% in Q3, as reported by The Wall Street Journal (https://www.wsj.com/economy/us-gdp-report-2025-b764e50e). The weaker headline indicates a late‑quarter cooling after a strong summer rebound.

Price pressures firmed into December, with core PCE running near 3% year over year and rising about 0.4% month over month, as summarized by Barron’s (https://www.barrons.com/articles/pce-inflation-what-expect-32789cb8). That combination of slower growth and stickier inflation complicates potential Federal Reserve rate cuts.

Investor Peter Schiff argued the economy is cooling fast and tilting toward stagflation, highlighting the tension between decelerating output and persistent inflation. Some economists, however, view a portion of the Q4 weakness as transitory rather than structural.

Under Bureau of Economic Analysis accounting, quarterly GDP reflects contributions from consumption, investment, government, trade, and inventories. Compared with Q3, three shifts stand out: a weeks‑long federal shutdown, tariff‑related trade frictions, and a pullback in federal outlays, which together weighed on the headline even as private demand held steadier.

One widely cited estimate puts the shutdown’s drag near one percentage point of annualized growth. “The weak Q4 GDP stemmed largely from the self‑inflicted drag of the 43‑day government shutdown,” said Gregory Daco, chief economist at EY‑Parthenon, as reported by the Financial Times (https://www.ft.com/content/93dd6f14-47ec-42e7-9506-46e6d6ad69e2).

The Washington Post reported that tariffs and the weeks‑long government shutdown contributed to the sharp cooling, coinciding with the drop to a 1.4% annual rate (https://www.washingtonpost.com/business/2026/02/20/gdp-2025-economy-tariffs-trade/). That pattern implies policy shocks were outsized drags relative to underlying private‑sector behavior.

Analysts also pointed to a silver lining: consumer spending and business investment held up reasonably well beneath the weak headline, according to Axios (https://www.axios.com/2026/02/20/gdp-pce-shutdown-consumer-spending). If shutdown‑related effects reverse, that resilience could cushion early‑2026 activity.

At the time of this writing, GOLD (ticker: GOLD) traded near $57.78, according to Yahoo Finance. This neutral backdrop underscores that markets are still parsing slower growth alongside firmer inflation.

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