The US just dealt a one-two punch: economic growth slowed by more than feared, and inflation came in higher than expected
What’s going on here?
US economic growth slowed more than feared last quarter, but a Supreme Court ruling – and a fresh presidential post – was more than enough to distract investors.
What does this mean?
America’s economy only grew by an annualized 1.4% last quarter from the one before. That’s miles below both the 2.2% that economists expected and the previous quarter’s 4.4% growth.
▶ The biggest sucker punch came from the government shutdown, which lopped off a full percentage point. That kind of disruption is temporary, though, so investors largely shrugged off the lackluster figures.
▶ Their attention was probably being pulled elsewhere, anyway: the US Supreme Court just deemed the president’s sweeping tariffs illegal.
Why should I care?
Zooming in: The Fed can’t win for losing.
The Federal Reserve’s (Fed’s) favorite inflation gauge showed prices rose 0.4% in December from November, the quickest monthly pace in almost a year. On a yearly basis, inflation came in at 3% – still a clear notch above the central bank’s 2% target.
▶ That leaves the Fed in a bind. See, even if you take out the impact of the government shutdown, economic growth slowed – despite investors’ nonchalance. And that calls for lower interest rates, while stubborn inflation argues for the opposite.
The bigger picture: The few, not the many.
The richest 10% of Americans now make up half of all US consumer spending – the biggest slice on record. That’s largely because they’re more likely to own stocks and property, so their overall wealth swells as share and home prices pick up. All while lower-income households spend less, work more, and borrow money to keep their heads above water.
▶ That’s led to today’s “K-shaped” economy, which leans heavily on the spending of the wealthiest few. But if stocks and property prices start falling, they could pull the purse strings tight…
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Originally Posted February 20, 2026 – US Economic Growth Slowed, But Investors Were Distracted By Other Happenings
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