As US economy drastically slows, Fed’s preferred inflation gauge stays hot – likely putting rate cuts on hold

US Economy Faces Challenges as Growth Slows and Inflation Rises

The latest economic reports suggest that the US economy is facing challenges as growth slows and inflation rises. According to the Commerce Department, gross domestic product (GDP) grew at a slower-than-expected rate of 1.4% in the fourth quarter of 2025, down from 2.8% in 2024.

Meanwhile, the Fed’s preferred inflation gauge, the PCE price index, rose to 2.9% in December, above estimates of 2.7%. The core PCE, which excludes volatile food and energy prices, increased by 3% over the past year, exceeding the Fed’s 2% inflation target.

These economic indicators have led to a debate among policymakers at the Federal Reserve. The central bank’s reluctance to cut interest rates further is evident in the minutes from its January meeting.

President Trump attributed the economic slowdown to last year’s government shutdown, criticizing Federal Reserve Chair Jerome Powell in the process. Analysts expect policymakers to take a cautious approach in light of the recent economic data.

Despite the challenges, there are some positive signs of economic strength, such as a 2.4% increase in final sales to private domestic purchasers and a 3.8% jump in gross private domestic investment.