Economists are growing more concerned about the path forward for the US economy as President Trump’s tariff policies become reality.
In a research note on Monday, Goldman Sachs chief economist Jan Hatzius slashed his team’s 2025 GDP forecast to 1.7% from 2.4% while boosting their projection for the Fed’s preferred inflation gauge to end the year at 3%, up from a prior call in the mid 2% range. Hatzius noted these updates mark the first time in about two and a half years that his team has projected GDP growth below Bloomberg consensus data (which currently calls for above 2% growth).
“The reason for the downgrade is that our trade policy assumptions have become considerably more adverse,” Hatzius wrote.
Hatzius’s team now sees the average US tariff rate rising by 10 percentage points this year, twice their previous forecast and five times the level seen during Trump’s first administration. Tariffs weigh on the overall economic outlook through several levers, Hatzius said.
First, the new duties are expected to push up consumer prices and, therefore, cut real income for consumers. Second, they usually come alongside tighter financial conditions. And third, the uncertainty surrounding the tariff implementation will likely prompt businesses to “delay investment.”
Hatzius believes the combination of slower growth and sticky inflation can still leave room for the Federal Reserve to cut twice this year in June and December. But for now, Trump’s policy uncertainty likely keeps the central bank holding rates steady.
“Our near-term view is that the FOMC [Federal Open Market Committee] will want to stay on the sidelines and make as little news as possible until the policy outlook has become clearer,” Hatzius said.
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