US GDP Revised Down to 0.7% as Core PCE Inflation Hits 3.1%

The U.S. economy expanded at a slower pace than previously estimated in the fourth quarter of 2025. According to the second estimate released by the Commerce Department’s Bureau of Economic Analysis, gross domestic product (GDP) grew at an annualized rate of 0.7%. The figure marks a sharp downward revision from the initial estimate of 1.4%.

The data signals a notable loss of momentum toward the end of the year. The U.S. economy had grown at a much stronger pace earlier in 2025, with GDP expanding 4.4% in the third quarter and 3.8% in the second quarter. A steep decline in federal government spending and investment—down 16.7%—subtracted roughly 1.16 percentage points from overall growth.

Consumer spending, which accounts for the largest share of U.S. economic activity, also slowed. Personal consumption expenditures rose at a 2% annual pace in the fourth quarter, down from 3.5% in the previous quarter. Exports fell at a 3.3% rate, weighing on growth, while nonresidential business investment increased by 2.2%, providing some support to economic activity.

Meanwhile, inflation data released for January showed persistent price pressures. The personal consumption expenditures (PCE) price index increased 2.8% year over year. Core PCE, which excludes volatile food and energy prices and is closely watched by the Federal Reserve, rose to 3.1%, the highest level in nearly two years. On a monthly basis, overall PCE rose 0.3% and core PCE increased 0.4%.