US Q4 GDP growth eased to 1.4% quarter-on-quarter annualised and 2.2% year-on-year. The slowdown was linked to weaker government spending after the Oct\/Nov shutdown.<\/p>\n
Government expenditures fell 5.1% quarter-on-quarter annualised, cutting 0.9 percentage points from headline GDP. Core GDP (PDFP), which excludes government, net exports, and inventories, rose 2.4% in Q4 after 2.9% in both Q2 and Q3.<\/p>\n
Consumer spending increased 2.4% quarter-on-quarter annualised in Q4, down from 3.5% in Q3. Goods spending dipped modestly, while services spending rose 3.4%.<\/p>\n
Core PCE inflation rose 0.36% month-on-month in December and headline PCE also rose 0.36%. Forecasts cited were 0.25% core and 0.27% headline, with a 0.3% consensus forecast for both.<\/p>\n
TD Securities expects some normalisation after November\u2019s weaker readings and projects January core PCE at 0.19% and headline at 0.12%, based on CPI data. The note also refers to slower spending early in the year ahead of tax refunds.<\/p>\n
Looking back, the analysis from early 2025 was largely correct about the temporary nature of the Q4 2024 slowdown. The predicted rebound in government spending did materialize in the first quarter of 2025, preventing a sharper downturn. This pattern of underlying resilience, despite pockets of weakness, has defined the economic landscape for the past year.<\/p>\n
That same report highlighted a deceleration in the US consumer, a trend that has now become more entrenched. We’ve seen this play out with the unemployment rate gradually climbing to its current 4.1% and the most recent GDP report for Q4 2025 showing growth at a modest 2.5%. This persistent softness in consumer activity is the key reason we are now positioned for a shift in monetary policy.<\/p>\n
The warning not to overreact to the upside surprise in core PCE back then was prudent, as inflation did moderate through 2025, though it has remained sticky. With the latest January 2026 core PCE reading still at 2.8% year-over-year, the Federal Reserve remains cautious. However, the slowing growth narrative has derivatives markets pricing in a 75% probability of a rate cut by the June 2026 meeting.<\/p>\n
Given this environment, we are seeing increased activity in options on SOFR futures, particularly structures that would profit from a rate cut occurring in the June to September timeframe. Traders should also consider the potential for increased volatility around upcoming inflation and jobs reports, as any deviation from expectations will heavily influence the Fed\u2019s timing. The flattening of the yield curve last fall serves as a historical reminder of how quickly the market can price in such a policy shift.<\/p>\n
Create your live VT Markets account<\/a>\u00a0and\u00a0start trading<\/a>\u00a0now. <\/b><\/p>\n","protected":false},"excerpt":{"rendered":" Q4 US GDP slowed as government spending fell post-shutdown; consumer demand softened; PCE inflation surprised higher.<\/p>\n","protected":false},"author":62,"featured_media":17021,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[59],"tags":[],"class_list":["post-42579","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-live-updates"],"acf":{"acf_article_selection_author":null},"aioseo_notices":[],"aioseo_head":"\n\t\t\n\t\n\t\n\t\n\t\n\n\t\t