US GDP Growth Slows to 1.4% in Q4, Missing Forecasts Amid Cooling Demand

The United States economy recorded a 1.4% annualized growth rate in the fourth quarter of 2025, a figure that underscores a cooling trend in the world’s largest economy. This preliminary estimate from the Department of Commerce fell notably short of the 2.0% to 2.2% range many analysts had anticipated, marking a transition from the robust expansion seen earlier in the year to a more cautious, high-interest-rate-constrained environment. While the economy remains in expansionary territory, the deceleration suggests that the cumulative weight of the Federal Reserve’s monetary tightening is finally curbing the post-pandemic momentum.

At the heart of this slowdown is the American consumer. For much of the past two years, household spending remained resilient despite inflationary pressures, buoyed by a strong labor market and residual savings. However, the Q4 data indicates a shift. High borrowing costs for mortgages, auto loans, and credit cards have begun to bite, leading to a moderation in big-ticket purchases. Furthermore, the excess savings accumulated during the pandemic era have largely been depleted for middle- and lower-income brackets, forcing a return to more traditional, and constrained, spending patterns. This cooling of the primary engine of the US economy—which accounts for roughly 70% of GDP—is the most significant takeaway for market analysts.

“

The United States economy recorded a 1.4% annualized growth rate in the fourth quarter of 2025, a figure that underscores a cooling trend in the world’s largest economy.

Business investment also showed signs of hesitation during the final three months of the year. With the cost of capital remaining at multi-decade highs, many firms have opted to delay expansion projects or reduce inventory accumulation. This wait-and-see approach is particularly evident in the manufacturing and real estate sectors, where sensitivity to interest rates is most acute. The housing market, in particular, continues to struggle with a lock-in effect, where homeowners with low-rate mortgages are reluctant to sell, and new buyers are sidelined by high monthly payments, further dragging on the broader economic output.

The implications for the Federal Reserve are profound. Throughout 2025, the central bank maintained a restrictive stance to ensure inflation returned to its 2% target. This 1.4% GDP print provides the dovish faction of the Federal Open Market Committee (FOMC) with significant ammunition to argue for a pivot toward interest rate cuts. If growth continues to stall while inflation remains near target, the risk shifts from overheating to a potential recession. Market participants are now pricing in a higher probability of a rate cut in the first half of 2026, viewing this slowdown as the necessary evidence that the Fed’s mission to cool the economy has been accomplished—perhaps too effectively.

Looking ahead, the first quarter of 2026 will be a critical litmus test for the soft landing narrative. If the slowdown in Q4 was a temporary seasonal adjustment or a reaction to specific year-end volatility, we may see a modest rebound. However, if the 1.4% rate is the start of a downward trend, the narrative will shift toward stagnation or even stagflation if price pressures do not abate in tandem with growth. Analysts will be closely watching upcoming retail sales and employment data to determine if the labor market can continue to support the economy as the primary engine of growth begins to sputter. The global context also weighs heavily, as slowing growth in the US often precedes cooling in international markets, potentially prompting a coordinated shift in global monetary policy.