Government Shutdown Impact

The Commerce Department’s second estimate cut Q4 2025 GDP growth to a 0.7% annual rate (from 1.4%), blaming a 43‑day government shutdown and a 16.7% plunge in federal spending that subtracted 1.16 percentage points, with consumer spending slowing to 2.0%, non‑housing business investment up 2.2%, exports down 3.3% and an underlying demand measure rising just 1.9%, leaving full‑year 2025 growth at 2.1%. At the same time core PCE inflation was running 3.1% year‑over‑year in January (3.7% annualized over the prior three months) while real PCE barely rose and the personal saving rate jumped to 4.5%; job openings climbed to about 6.95 million even as hiring stayed weak (92,000 jobs cut last month and sub‑10,000 average monthly gains in 2025), raising warnings that Iran‑related oil shocks and weak hiring could boost inflation and complicate Fed policy.