Interview
How tariffs will impact the US economy
- The effective tariff rate is projected to increase by approximately 10 percentage points, a significant revision upward from previous expectations of a 4 to 5 percentage point rise, potentially including reciprocal tariffs and measures targeting autos.
- Inflation is now forecast to reach just under 3% by year-end due to these tariff assumptions, contrasting with the prior expectation of a decline from 2.65% to approximately 2.1% in the absence of such measures.
- The 2025 GDP growth forecast has been revised downward from 2.2% to 1.7% on a year-over-year basis to account for the anticipated economic impact of the larger tariff increases.
- The probability of a recession within the next 12 months has been elevated from 15% to 20%, contingent on specific policies chosen by the White House, with further increases possible if larger tariffs are enacted or if the administration persists despite weak economic data.
- The Federal Reserve maintains a baseline forecast of two interest rate cuts this year and one next year, noting that inflation running near 3% precludes normalization cuts, though "insurance cuts" similar to 2019 could occur if the economic weakening threshold is met with sufficient data evidence.
- Business confidence is expected to decline following the latest tariff threats, with investment likely to suffer from policy uncertainty following negative Q4 growth that was not flattered by the previous year's Boeing shipments.
- Hiring in the healthcare and government sectors faces exposure to uncertainty regarding proposed government spending cuts, while the broader economic damage from uncertainty is anticipated to be more severe than in 2019 due to the expanded scope of tariffs and potential retaliation affecting services and manufacturing.
- The risk of tariffs triggering broader price increases and rising inflation expectations is heightened by the intense focus of businesses and consumers, with the White House expected to demonstrate a greater willingness to pursue policies involving economic and political risks compared to its first term.