U.S. Macroeconomy

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.

The Fed’s preferred inflation gauge, core PCE, rose in January—worsening before Iran‑war driven fuel spikes—and Q4 data show softer underlying demand, with real final sales to private domestic purchasers revised down to a 1.9% annual rate, January real consumer spending up just 0.1% and the personal saving rate climbing to 4.5%, while AI‑related investment failed to lift business spending. At the same time job openings jumped to about 6.95 million in January (a ~396,000 increase), even as hiring stalled—employers cut 92,000 jobs and 2025 saw the weakest non‑recession hiring since 2002—heightening tensions between persistent inflation and political pressure for rapid Fed rate cuts.