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U.S. GDP Growth Revised Down to 0.7% in Q4; Core Inflation at 2.8%

The U.S. Commerce Department revised fourth-quarter 2025 GDP growth down to 0.7% from 1.4%, citing reduced government and consumer spending. This marked a significant slowdown from the previous quarter's 4.4% growth and missed forecasts. Full-year GDP for 2025 was 2.1%, down from 2.8% in 2024. Core inflation, measured by the PCE index, rose 0.3% in January 2026, with an annual rate of 2.8%, exceeding the Federal Reserve's target. These figures indicate cooling economic growth but persistent inflationary pressures.

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U.S. GDP Growth Revised Down to 0.7% in Q4; Core Inflation at 2.8%

The U.S. economy expanded at a significantly slower rate than previously thought in the final quarter of 2025, with gross domestic product growth revised down to a 0.7% annual rate. Meanwhile, core inflation remained stubbornly high in January 2026, according to the Commerce Department's report on Friday.

GDP Revision Details

  • Fourth-quarter GDP growth was revised down from an initial estimate of 1.4% to 0.7%, falling short of the 1.5% forecast by Dow Jones.
  • The sharp deceleration from the 4.4% growth in Q3 was largely due to a 16.7% plunge in government spending, attributed to the record-long government shutdown.
  • Consumer spending was also revised downward, rising only 2% for the quarter after a 0.4 percentage point cut, with healthcare services contributing significantly to the reduction.
  • Adjustments in exports and a smaller decline in imports also played a role in the revision.

Inflation Data for January

  • The personal consumption expenditures (PCE) price index, the Federal Reserve's preferred inflation gauge, increased by 0.3% in January.
  • This put the annual inflation rate at 2.8%, which is above the Fed's 2% target and slightly higher than the 2.9% that economists had expected.
  • Core inflation, which excludes volatile food and energy prices, showed similar trends, indicating persistent price pressures.

Full-Year Economic Outlook

  • For the entire year of 2025, GDP grew by 2.1%, a tenth of a percentage point lower than previously reported and down from the 2.8% pace in 2024.
  • The data suggests a broader slowdown in economic growth alongside entrenched inflation, posing challenges for monetary policy.
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