Government shutdown masks solid GDP growth

Economic growth slowed sharply last quarter as the record 43-day federal shutdown shaved more than a full percentage point from GDP, masking otherwise solid private-sector momentum. Consumer and corporate spending held up reasonably well, but housing remained soft and government outlays collapsed, underscoring how policy shocks can quickly alter headline data without signaling an outright demand downturn. The Supreme Court’s decision curbing tariff authority adds fresh uncertainty to the trade backdrop, yet potential alternative tariff tools and even possible refunds of past duties could meaningfully affect corporate earnings and sector leadership.

Inflation has ticked higher on the back of tariffs, keeping core PCE at 3% year over year and complicating the path for monetary policy just as markets look for additional Fed cuts under incoming leadership. For investors, this mix of slower reported growth, resilient private demand, shifting trade rules and a cautious but easing Fed argues for selective risk-taking: favoring quality companies with strong balance sheets and pricing power while staying attentive to policy-driven volatility in rates, currencies and globally exposed sectors.