WASHINGTON, Feb 20, 2026, 08:58 EST
- U.S. GDP expanded at a 1.4% annualized pace in the fourth quarter of 2025, easing off from the 4.4% growth posted in Q3.
- Core PCE inflation printed a 0.4% gain for December, bringing the year-on-year rate to 3.0%. Headline PCE advanced 2.9% compared with the same month last year.
- Stock index futures slipped following the data, with investors juggling sluggish growth and stubborn inflation.
Futures for major U.S. indexes slipped Friday as fresh data pointed to a late-2025 slowdown in economic growth, while December inflation came in higher than forecast. As of 8:34 a.m. ET, S&P 500 E-minis traded 0.28% lower, with Nasdaq 100 E-minis losing 0.39% and Dow E-minis off by 0.23%. The fourth quarter saw GDP expand at a 1.4% annualized clip, and core PCE inflation advanced 0.4% for December.
The Commerce Department’s Bureau of Economic Analysis reported that the personal consumption expenditures (PCE) price index increased 0.4% in December, putting it 2.9% higher than it was a year ago. Core PCE, stripping out food and energy costs, also posted a 0.4% monthly gain and is now up 3.0% year-over-year—still above the Federal Reserve’s 2% inflation goal. Personal income and disposable income each ticked up 0.3%. Consumer spending came in a notch higher, up 0.4%, while the saving rate was unchanged at 3.6%.
BEA reported that real GDP climbed at a 1.4% annualized pace in the fourth quarter, slipping from 4.4% the previous quarter. Growth for the full year eased to 2.2%, compared to 2.8% in 2024. Consumer spending and investment propped up the quarter, though weaker government outlays and exports kept gains in check. Real final sales to private domestic purchasers—a key read on private-sector demand—posted a 2.4% increase. A delayed release followed the October–November shutdown, which, according to BEA, meant lost labor from furloughed federal employees subtracted about 1 percentage point from fourth-quarter growth.
President Donald Trump took to social media before the GDP numbers dropped, pinning the disappointing figures on the shutdown and pushing for a rate cut.
Economists are still describing a divided economy—wealthier households keep spending, but others remain squeezed by rising costs. They see tax cuts and a wave of AI-linked investment providing some lift this year. “It doesn’t really translate to feel as good as it looks on paper,” KPMG’s Diane Swonk said. Gregory Daco at EY-Parthenon pointed to “a confluence of shocks,” like tariffs and trade limits, though AI outlays and stock gains help offset those. Over at BMO, Sal Guatieri noted real disposable income “pretty much stalled” in the quarter. And Lou Crandall from Wrightson ICAP flagged that core inflation, year-on-year, has made “no progress since mid-2024.” Reuters
Economists flagged December’s firmer core PCE print, which landed above the 0.3% mark forecast in a Reuters poll, as a signal that inflation may pick up pace in January. That would feed expectations that the Fed is unlikely to move on rates before June. Barclays economist Pooja Sriram highlighted a sharp 12% surge in legal services prices for January, estimating it could tack on “about 10 basis points” to core PCE, but cautioned it’s “a very volatile category.” The market will get January’s PCE figures on March 13. Next week’s producer price index could force forecasters to adjust, economists said. Reuters
Annualized numbers reflect how the economy would perform for an entire year if the current quarter’s speed held steady. “Real” readings remove the impact of inflation, while “core” inflation ignores volatile moves in food and energy prices.
The GDP figure is just an advance estimate—expect revisions as more comprehensive data rolls in, particularly since the shutdown left agencies scrambling to fill in gaps. Trade and inventories might jolt growth from quarter to quarter, and sometimes what’s beneath the surface in the report ends up being more telling than the headline itself. Inflation? Even if goods prices ease, a handful of stubborn services categories could keep the core number high.
Awkward signals for markets. Slower growth tends to encourage rate cuts, but stickier inflation muddles that picture. Rate expectations swing quickly, and stocks follow.
Coming up, a string of releases should show if shoppers are still opening their wallets—or if they’re finally balking as prices climb. Policymakers, for their part, want to see a clear pattern rather than another round of choppy, unpredictable data.
