Fresh U.S. macroeconomic data have complicated expectations around the Federal Reserve’s next move, reducing the likelihood of an imminent rate cut. As YourDailyAnalysis observes, the combination of weaker headline growth and still-elevated inflation does not automatically translate into policy easing – particularly when underlying private demand remains resilient.
The advance estimate showed U.S. GDP growth slowing sharply to 1.4% annualized in the fourth quarter of 2025, down from 4.4% in the third quarter and well below market expectations of around 3%. At first glance, such a deceleration would typically support the case for monetary easing. However, the composition of that slowdown matters. A significant portion of the weakness stemmed from reduced government spending, including the impact of an extended federal government shutdown that reportedly shaved roughly one percentage point off quarterly growth. From a policy perspective, temporary administrative disruptions are often treated differently from structural declines in private sector momentum. In that sense, the GDP figure may look weaker than the underlying economy actually is.
For the full year, growth came in at 2.2%, compared with 2.8% in 2024. This moderation signals cooling, but not contraction. A gradual deceleration reduces overheating risks, yet it does not necessarily create urgency for immediate rate cuts – especially if inflation dynamics remain unsettled.
Importantly, private domestic demand – a measure that strips out government volatility and focuses on consumer and business behavior – remained relatively stable, rising around 2.4% in the quarter. Consumers continued to spend, primarily on services such as healthcare and travel rather than goods. Business investment also edged higher, with particularly strong gains in information processing equipment, reflecting ongoing spending tied to artificial intelligence infrastructure. According to the structural reading presented by YourDailyAnalysis, this combination – steady services consumption and technology-focused capital expenditure – is inconsistent with an economy sliding rapidly into recession. It suggests moderation rather than breakdown.
Inflation data further complicate the picture. The Personal Consumption Expenditures (PCE) index rose 0.4% month over month in December, while annual headline PCE stood at 2.9%. Core PCE, excluding food and energy, also increased 0.4% on the month and hovered near 3.0% year over year. While these figures are not indicative of accelerating inflation, they do point to persistence above the Federal Reserve’s 2% target. From a policy standpoint, a 0.4% monthly gain in core inflation is significant enough to discourage aggressive easing. It reinforces the view that inflation may be cooling gradually, but not decisively enough to justify rapid rate reductions.
Market expectations adjusted quickly following the releases. The probability of a rate cut at the next Federal Open Market Committee meeting appears limited, with investors increasingly pricing in a continued pause unless upcoming labor market data show clear deterioration. As our analysts assess, the Federal Reserve remains in a “data-dependent” posture – and, as highlighted in Your Daily Analysis, the current mix of slower growth but sticky inflation strengthens the case for patience rather than immediate accommodation.
Political pressure adds another dimension. President Donald Trump publicly called for lower interest rates and renewed criticism of Fed Chair Jerome Powell. However, public demands rarely alter near-term monetary decisions. If anything, visible political pressure can reinforce the central bank’s commitment to demonstrating independence through data-driven caution.
Looking ahead, the March policy meeting will likely hinge on two variables: whether inflation resumes a clearer downward trajectory and whether labor market indicators show meaningful softening. The baseline scenario is a pause, with flexibility preserved for later cuts if disinflation strengthens. A near-term reduction remains possible, but only if subsequent data confirm both slower price growth and weakening employment conditions.
In sum, the latest GDP and inflation reports point to an economy that is slowing in an orderly fashion rather than contracting abruptly. Inflation is easing, but not collapsing. In this environment, the Federal Reserve has little incentive to rush. As YourDailyAnalysis concludes, the current data support a continuation of strategic patience: growth is moderating without imploding, and price pressures are declining without fully resolving. That balance reduces the urgency for immediate rate cuts while keeping policy options open for the remainder of the year.
