The US economy expanded at an annualized rate of 0.5% in the fourth quarter of 2025, according to the final estimate from the Bureau of Economic Analysis (BEA), which was lower than both the previous estimate of 0.7% and the initial estimate of 1.4% [1][3][5]. This figure also fell short of economists' expectations, who had forecast 0.7% growth for the quarter [1][3][5]. The downward revision was primarily attributed to lower investment than previously indicated [1][5]. The BEA noted that increases in consumer spending and investment contributed to the GDP growth, but these were partly offset by decreases in government spending and exports, while imports decreased [1]. Real final sales to private domestic purchasers, a key demand metric, were also revised down to a 1.8% growth rate, 0.6 percentage points lower than the first estimate [5].
Inflation data for February showed that the Personal Consumption Expenditures (PCE) Price Index, the Federal Reserve's preferred inflation gauge, rose 2.8% year-over-year and 0.4% month-over-month, both in line with market expectations [2][4][5]. The core PCE Price Index, which excludes food and energy, edged down to 3% from 3.1% in January, also matching forecasts [2][4][5]. The BEA reported that personal income declined by 0.1% on a monthly basis, while personal spending increased by 0.5% in February, according to some sources [2]. However, another source reported that consumer spending unexpectedly fell by 0.1% and personal income rose by 0.4% in February, highlighting a discrepancy in the data [5].
Market reaction to these releases was muted, with the US Dollar Index remaining virtually unchanged, fluctuating near 99.00 and 98.96 at the time of the reports [1][2]. Analysts noted that the combination of weaker-than-expected GDP growth and persistent inflation suggests stagflationary pressures, with David Russell of TradeStation stating, "February prices were in line but income was weak and GDP was revised down again. That means stagflation was a little worse than expected even before the Iran war started" [5]. Tobias Carlisle of The Acquirers Funds commented that "The economy is expanding and the consumer will start looking a lot healthier," referencing retail sales trends amid the GDP report [3].
The inflation data covers the period before the US and Israel launched military action against Iran, and thus does not reflect the subsequent surge in energy prices, with oil prices reportedly climbing over $100 a barrel and gasoline prices rising by more than $1 a gallon during the conflict [5]. Fed officials are expected to look through these types of price surges, focusing on underlying inflation trends [4][5].
CONCLUSION
US economic growth in Q4 2025 was revised downward to 0.5%, missing expectations, while PCE inflation remained elevated but stable at 2.8%. Market reaction was limited, but analysts highlighted ongoing stagflation risks amid persistent inflation and weaker growth. The data predates recent geopolitical events, which are expected to further impact energy prices and inflation.