The U.S. economy slowed more than expected over the final months of 2025, federal government data on Friday showed.
The economy grew at an annualized rate of 1.4% in the fourth quarter in the government’s initial estimate, marking a cooldown from blistering-hot 4.4% growth recorded in the previous quarter.
The fresh reading of gross domestic product on Friday provided a key measure of the country’s economic health as policymakers continued to grapple with an ongoing bout of elevated inflation and sluggish hiring.
Inflation cooled in January, dropping price increases to their lowest level in nine months. While the pullback defied fears of a tariff-induced rise in overall costs, inflation continued to hover above the Federal Reserve’s target rate of 2%.
Meanwhile, a recent jobs report showed stronger-than-expected hiring in January, even though an updated estimate released at the same time indicated a near-paralysis of the labor market last year.
A boost in consumer spending helped propel the surge in GDP over three months ending in September, the U.S. Commerce Department previously said.
In this Jan. 28, 2026, file photo, U.S. Federal Reserve Chair Jerome Powell speaks during a press conference in Washington, D.C.,
Jonathan Ernst/Reuters, FILE
Retail sales data last week showed flat performance in December, however, suggesting possible weakness for shoppers during the holiday season. Meanwhile, credit-card debt levels have climbed and consumer sentiment has remained glum.
Consumer spending, which accounts for about two-thirds of U.S. economic activity, is a key bellwether for the outlook of the nation’s economy.
Over the past year, hiring has slowed dramatically while inflation has remained elevated, risking an economic double-whammy known as “stagflation.” Those conditions have put the Federal Reserve in a difficult position.
The central bank must balance a dual mandate to keep inflation under control and maximize employment. To address pressure on both of its goals, the Fed primarily holds a single tool: interest rates.
The strain on both sides of the Fed’s mandate presents a “challenging situation” for the central bank, Fed Chair Jerome Powell said in December.
The Fed held interest rates steady at its most recent meeting in January, ending a string of three consecutive quarter-point rate cuts.
Futures markets expect two quarter-point interest rate cuts this year, forecasting the first in June and a second in the fall, according to the CME FedWatch Tool, a measure of market sentiment.
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