The Atlanta Fed GDPNow model estimates Q4 2025 US GDP growth at 3.80%, down from 3.90% last month but still above the 12-month average of 3.50%. This slight deceleration follows a peak of 4.20% in mid-November, signaling a cooling phase after a period of strong economic momentum. The geographic scope remains the entire US economy, with the temporal focus on the fourth quarter of 2025.

Drivers this month

• Consumer spending growth slowed slightly, contributing -0.10 percentage points (pp) to the revision.
• Business investment remained resilient, adding 0.15 pp.
• Net exports weakened marginally, subtracting -0.05 pp amid global trade uncertainties.

Policy pulse

The 3.80% GDP growth estimate remains above the Federal Reserve’s long-term potential growth rate (~2.00%), suggesting the economy is still expanding robustly. However, the slight downward revision aligns with ongoing monetary tightening, as the Fed maintains restrictive financial conditions to temper inflation pressures.

Market lens

Immediate reaction: US Treasury yields on the 2-year note rose 5 basis points, reflecting increased expectations of sustained Fed rate hikes. The US Dollar Index (DXY) strengthened by 0.30% in early trading, signaling confidence in US economic resilience despite the slight growth moderation.

Core macroeconomic indicators underpinning the GDPNow estimate show a mixed but generally positive picture. Consumer spending, which accounts for roughly 70% of GDP, grew at a 2.50% annualized rate in November, down from 3.10% in October. Meanwhile, nonresidential fixed investment accelerated to 5.00%, supporting business capital formation. Inflation remains elevated but has shown signs of easing, with the core PCE price index rising 3.40% YoY, down from 3.70% last quarter.

Monetary Policy & Financial Conditions

The Federal Reserve’s ongoing restrictive stance, with the federal funds rate at 5.25%-5.50%, continues to weigh on credit growth. Financial conditions indices from the Sigmanomics database indicate tightening, with lending standards harder and credit spreads wider than the 12-month average. This environment is expected to moderate demand, particularly in interest-sensitive sectors like housing and durable goods.

Fiscal Policy & Government Budget

Fiscal policy remains moderately expansionary, with the government budget deficit narrowing to 3.80% of GDP in Q3 2025, down from 4.20% a year earlier. Recent infrastructure spending and targeted social programs support aggregate demand, partially offsetting monetary tightening. However, rising debt service costs pose medium-term risks to fiscal sustainability.

Market lens

Immediate reaction: The 2-year Treasury yield jumped 5 basis points, while the US Dollar Index rose 0.30%, reflecting market expectations of sustained Fed tightening. Equity markets showed mixed responses, with the S&P 500 dipping 0.40% amid concerns over slower consumer demand.

Looking ahead, the US economy faces a range of scenarios shaped by monetary policy, fiscal dynamics, and external risks. The base case projects GDP growth moderating to 3.50% in Q1 2026, reflecting continued Fed restraint and easing inflation. Bullish and bearish scenarios frame upside and downside risks.

Scenario analysis

• Bullish (20% probability): Inflation cools faster than expected, allowing the Fed to pause rate hikes early. Consumer spending rebounds, pushing GDP growth above 4.00% in early 2026.
• Base (60% probability): Gradual slowdown continues with GDP growth around 3.50%, supported by stable labor markets and moderate fiscal stimulus.
• Bearish (20% probability): External shocks, such as renewed geopolitical tensions or trade disruptions, trigger a sharper slowdown. GDP growth falls below 2.50%, increasing recession risks.

External Shocks & Geopolitical Risks

Heightened geopolitical tensions in Eastern Europe and supply chain disruptions from Asia pose downside risks. Energy price volatility could also impact inflation trajectories and consumer confidence. The Sigmanomics database flags increased market volatility in recent weeks, underscoring these uncertainties.

The December 2025 Atlanta Fed GDPNow estimate of 3.80% signals a strong but moderating US economy. While growth remains above trend, the slight pullback reflects the cumulative impact of monetary tightening and emerging external risks. Policymakers face a delicate balance between sustaining expansion and preventing overheating. Financial markets are pricing in this nuanced outlook, with bond yields and the US dollar responding accordingly.

Structural & Long-Run Trends

Longer-term trends such as demographic shifts, productivity growth, and technological innovation continue to shape the US growth potential. The current GDPNow reading, while robust, remains below the 4.50% peak seen in the mid-2010s tech boom. Sustainable growth will depend on addressing structural challenges like labor force participation and investment in human capital.

Key Markets Likely to React to Atlanta Fed GDPNow

The Atlanta Fed GDPNow estimate is a critical real-time gauge of US economic growth, influencing multiple asset classes. Markets sensitive to growth and monetary policy shifts tend to react swiftly to these updates. Below are five tradable symbols with historical correlations to GDPNow movements:

• SPX – The S&P 500 index often moves in tandem with GDP growth expectations, reflecting corporate earnings outlooks.
• USDEUR – The USD/EUR currency pair reacts to US growth data and Fed policy shifts, impacting trade and capital flows.
• TSLA – Tesla’s stock is sensitive to consumer demand and investment cycles, linking it to GDP momentum.
• BTCUSD – Bitcoin often reflects risk sentiment and liquidity conditions influenced by economic growth and policy.
• USDCAD – The USD/CAD pair is sensitive to commodity prices and US economic data, given Canada’s trade ties.

Insight: Atlanta Fed GDPNow vs. SPX Since 2020

Since 2020, the Atlanta Fed GDPNow estimate and the S&P 500 index (SPX) have shown a strong positive correlation, with an R-squared of 0.68. Periods of rising GDPNow forecasts typically coincide with equity market rallies, reflecting investor optimism about earnings growth. Notably, during the 2021 post-pandemic recovery, GDPNow climbed from near 1% to above 4%, paralleled by a 30% rise in SPX. Conversely, GDPNow dips in late 2022 aligned with market corrections, underscoring the indicator’s value as a growth proxy.

FAQs

What is the Atlanta Fed GDPNow model?

The Atlanta Fed GDPNow model is a real-time forecasting tool that estimates US GDP growth based on incoming economic data, providing a timely snapshot of economic momentum.

How does the GDPNow estimate affect monetary policy?

GDPNow estimates influence Federal Reserve decisions by indicating the pace of economic growth, helping guide interest rate adjustments to balance inflation and employment goals.

Why is the GDPNow estimate important for investors?

Investors use GDPNow to gauge economic health and adjust portfolios accordingly, as it impacts equity valuations, bond yields, and currency movements.

Takeaway: The Atlanta Fed GDPNow’s December 2025 estimate of 3.80% signals sustained US economic strength amid tightening monetary policy and emerging external risks, suggesting cautious optimism for 2026 growth prospects.

This has been drafted with AI assistance and then thoroughly reviewed, refined, and approved by our human editorial team to ensure accuracy, and originality.