Economists Slash US Growth, Boost Inflation Forecasts On Tariffs

Economic

Summary:

Wall Street economists said the US risks a recession this year and inflation could return to pandemic levels followin.

Wall Street economists said the US risks a recession this year and inflation could return to pandemic levels following the Trump administration’s announcement of major tariffs on global trading partners.

Nomura Securities International Inc said it expects gross domestic product (GDP) to expand 0.6% in 2025 after accounting for the new levies on imports, and a key measure of underlying inflation to rise to 4.7%.

Barclays plc economists took a more pessimistic view towards GDP — projecting a 0.1% contraction — and a slightly more optimistic view of inflation, pencilling in a 3.7% increase. They also look for the unemployment rate to climb by year-end.

President Donald Trump’s tariff announcement on Wednesday sent global financial markets into a tailspin, upending forecasts for ongoing expansion in the world’s largest economy. Several major banks offered provisional estimates of the impact which indicated a big hit to growth and boost to inflation, though they declined to make formal revisions, citing the possibility that the measures could be tempered in coming days.

“Clearly such a large adjustment poses material downside risk to the expansion. Our assessment would lift not only inflation into 2026, but also sees GDP fall and the unemployment rate rise,” UBS chief US economist Jonathan Pingle said on Wednesday in a note. “We would expect two quarters of negative GDP growth.”

Trump says he wants to rebalance the global trading system in favour of American workers, who he argues have suffered for decades from unfair deals negotiated by his predecessors. In a statement following the announcement, the US Trade Representative Office said tariffs for each country were calculated based on the size of their trade surplus with and the values of their exports to the US.

The levies, if they remain in place, threaten to erase most of the progress made in reducing inflation over the last three years. The Federal Reserve’s preferred measure — based on the personal consumption expenditures (PCE) price index excluding food and energy — stood at 2.8% in February, down from the pandemic high of 5.6% reached in February 2022.

“If one takes a now current policy baseline forward, core PCE forecasts for 2025 should be revised into the 4-5% range,” Peter Williams, an economist at 22V Research, said in a note late on Wednesday. “The low-to-mid 3s seemed appropriate based off policy this morning [Wednesday]. Excess precision feels unnecessary and impractical. There is now going to be the feared second wave higher of core PCE inflation.”

Amid the rout in markets, investors rushed into bets on several Fed interest-rate cuts over the remainder of the year despite the expected rise in inflation. They now see a roughly 30% chance of a quarter-point reduction at the conclusion of the US central bank’s next two-day policy meeting on May 7, and better-than-even odds of cuts at each of the final five meetings of the year, according to futures.

“We’re raising our baseline core PCE inflation forecast for the fourth quarter of 2025 to 3.0% (vs a previous forecast of 2.8%), and our unemployment-rate forecast to 4.8% (vs 4.5% previously). We pencil in a more modest inflation impact from the tariffs than the 2018 Fed model provides, as we think most of the burden will fall on the labour market and on firms’ profit margins,” says Anna Wong, chief US economist at Bloomberg Economics.

Economists were generally more cautious on the outlook for rates. Fed officials “would likely react, but slowly at first, and really only respond forcefully after seeing the economic damage because of the inflation risks, in our view,” Pingle said in the UBS report.

“The price level increase is large enough that monetary policy could risk getting caught offside, not unlike in 2022” when the central bank was slow to raise rates, he said.

Fed chair Jerome Powell will give a speech on the economic outlook on Friday morning after the Bureau of Labor Statistics publishes its March employment report.

Source: Theedgemarkets

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Jason

Economic

The Director-General of the World Trade Organization said new tariffs announced by the U.S. along with those introduced at the start of the year could lead to a contraction of around 1% in global merchandise trade volumes in 2025.

"I'm deeply concerned about this decline and the potential for escalation into a tariff war with a cycle of retaliatory measures that lead to further declines in trade," Ngozi Okonjo-Iweala said in a statement on Thursday.

She warned that the tariffs have the potential to create significant trade diversion effects.

The WTO administers 74% of global trade, down from around 80% at the beginning of the year due to recent tariffs, according to the organisation.

World leaders have warned of the potential negative economic consequences of the tariffs.

"President Trump's announcement of universal tariffs on the whole world, including the EU, is a major blow to the world economy," European Commission President Ursula Von Der Leyen said.

Okonjo-Iweala told member states earlier on Thursday in a letter seen by Reuters that the WTO had received many questions about the tariffs.

"Many of you have been in touch about the U.S. announcement on tariffs, asking for the Secretariat to provide an economic analysis of the impact of these tariffs and any potential reaction on your trade," Okonjo-Iweala wrote.

Observers say U.S. determination to double down on tariffs risks sidelining the Geneva-based WTO and its free-trade mandate.

Source: Yahoo Finance

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Devin

Central Bank

Jefferson emphasized the value of speeches as a means for the Federal Reserve to deliver its mission to the American people. He highlighted the significance of engaging with people from around the country to understand economic conditions and to learn about specific industries and communities. He suggested that such engagement helps in delivering better policies and that it’s crucial for households, businesses, and financial markets to understand policymakers’ views and assessments of economic conditions.

The vice chair explained that monetary policy affects the economy through financial market prices, such as long-term interest rates, which in turn influence the decisions of households and businesses. He also touched on the evolution of Fed communications, noting that clear and ample communication was not always a hallmark of the Fed.

On the economic outlook, Jefferson noted that significant progress has been made toward the Fed’s dual-mandate goals of maximum employment and stable prices, with solid labor market conditions and inflation somewhat elevated relative to the 2 percent goal. He also mentioned that surveys of consumers and businesses show heightened uncertainty about the economic outlook.

The vice chair pointed out that the economy expanded at a solid pace at the end of last year, with GDP rising at a 2.4 percent annual rate in the fourth quarter. However, he noted that both Fed policymakers and many private-sector forecasters anticipate a slower pace of expansion this year.

Regarding the labor market, Jefferson said conditions remain solid with the unemployment rate at 4.1 percent in February. He also mentioned that payroll job gains have averaged nearly 200,000 per month over the past six months, through February.

On inflation, the vice chair said that it has come down significantly over the past two and a half years but remains somewhat elevated relative to the 2 percent objective. He added that the median FOMC participant forecasts overall PCE inflation at 2.7 percent this year and 2.2 percent next year.

In terms of monetary policy, Jefferson supported the FOMC’s decision to hold rates steady at the last policy meeting in March. He concluded by stressing the value of central bank communication and wished attendees a productive and informative remainder of the conference.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

Source: Investing

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Devin

Economic

Commodity

Down more than 5% since President Trump's tariff announcement on Wednesday evening sent markets plunging, bitcoin (BTC) once again is disappointing bulls who have touted its store-of-value properties or potential as a non-correlated safe haven to risk assets like stocks.

"This moment feels like a turning point," said Joel Kruger, LMAX Group market strategist. "We see market participants increasingly drawn to [BTC's] appeal as a store-of-value asset and a compelling diversification tool amid the uncertainty."

Kruger noted that while the Nasdaq and S&P 500 have each tumbled to new 2025 lows, bitcoin for the moment is holding well above its year-to-date bottom of $75,000 — what technicians like to call "higher lows."

But Javier Rodriguez Alarcon, chief commercial officer at crypto exchange XBTO, believes otherwise.

“Despite talk that bitcoin could act as a hedge against dollar-centric volatility, in practice we’re still seeing a strong correlation between digital assets and broader risk markets in moments of uncertainty,” the ex-Goldman Sachs executive said in an email.

Gold still the preferred safe haven at JPMorgan

"Bitcoin's volatility and correlation with equities raises questions over its 'digital gold' narrative," said Nikolaos Panigirtzoglou and team at JPMorgan yesterday. "We see gold continuing to rise as the major beneficiary of the debasement trade," they added.

Even with bitcoin's recent pullback, the price is still above the bank's estimated average cost of production of $62,000, a metric which has acted as a lower boundary in the past, wrote Panigirtzoglou.

Gold today is lower by just 1.25% to $3,126 per ounce and within close sight of its record high of around $3,200.

Source: CoinDesk

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Damon

Economic

Commodity

In addition, 60 countries identified as having substantial nontariff barriers will face reciprocal tariff rates from April 9. Trump noted that the tariffs imposed by the U.S. will be lower than the effective rates, which include nontariff barriers and currency manipulation, charged to the U.S.

He also expressed a willingness to negotiate reciprocal reductions in tariffs. A 25% permanent tariff rate will remain in place for autos, steel, and aluminum.

Analysts at JPMorgan, Bank of America, and Citi, among others, warned that the new tariff regime could lead to increased inflation throughout the year, potentially impacting consumer sentiment, real wages, and consumer spending.

The price of goods could rise, potentially driving the Personal Consumption Expenditures (PCE) inflation rate over the rest of the year. This could then result in a consumer-led slowdown later in the year, and the Federal Reserve may be unable to counteract this by easing monetary policy if inflation remains above its 2% target.

For instance, the 25% tariffs on autos, auto parts, steel, and aluminum are expected to increase the prices of new and used autos, as well as auto insurance, maintenance, and repair costs.

This could lead to sustained inflationary pressures in the broader economy, similar to what was experienced during the pandemic.

The new tariffs are expected to generate at least $300 billion in annual tariff revenues, or potentially $600 billion if the average rate is closer to 20%.

The intensifying trade war sent shockwaves through markets with the S&P 500 falling by as much as 4.5% while tech-focused Nasdaq 100 sank 5%.

Elsewhere, XAU/USD prices fell 1.2% after hitting a fresh record high with market commentator Ed Yardeni saying he expects the yellow metal to reach $4,000 by the end of the year.

"That may happen sooner if Trump persists with his Reign of Tariffs," he said today.

Source: Investing

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Warren Takunda

Cryptocurrency

Bitcoin faces “very high risk” conditions from US trade tariffs, which could spark a slump to $71,000.

In his latest analysis, Charles Edwards, the founder of quantitative Bitcoin and digital asset fund Capriole Investments, warned about the impact of “higher than expected” US trade tariffs.

”Higher than expected” US tariffs pressure Bitcoin

Bitcoin reacted noticeably worse than US stocks after President Donald Trump announced worldwide reciprocal trade tariffs on April 2.

BTC/USD fell up to 8.5% on the day, while the S&P 500 managed to end the Wall Street trading session 0.7% higher.

Edwards said that US business expectations are reflecting the type of uncertainty seen only three times since the turn of the millennium.

“Consider this as tariffs come in higher than expected. The Philly Fed Business Outlook survey is showing expectations today comparable to 2000, 2008 and 2022,” he told X followers.

An accompanying chart showed the Philadelphia Fed’s Business Outlook Survey (BOS) back under 15 for the first time since the start of 2024. Late 2022 was the pit of the most recent crypto bear market when BTC/USD reversed at $15,600. Bitcoin Price Risks Drop to $71K as Trump Tariffs Hurt US Business Outlook_1

Bitcoin Price Risks Drop to $71K as Trump Tariffs Hurt US Business Outlook_1

Philadelphia Fed Business Outlook Survey vs. S&P 500. Source: Charles Edwards/X

In Capriole’s latest market update on March 31, Edwards acknowledged that BOS data can produce unreliable signals regarding market sentiment but argued that it should not be ignored.

“While no guarantee of the future outlook (this metric does have false signals) this is a data reading we have had before at very high risk zones (year 2000, 2008 and 2022), telling us to keep a very open mind,” he wrote, adding:

“Especially if the tariff war escalates significantly beyond current expectations or corporate margins start to fall.”

For Bitcoin, a key level to watch in the tariff aftermath is $91,000, with Capriole suggesting that US macroeconomic moves would “decide the ultimate technical trend from here.”

“All else equal, a daily close above $91K would be a strong bullish reclaim signal,” the update explained alongside the weekly BTC/USD chart.

“Failing that, a dip into the $71K zone would likely see a sizable bounce.” Bitcoin Price Risks Drop to $71K as Trump Tariffs Hurt US Business Outlook_2

BTC/USD 1-day chart (screenshot). Source: Capriole Investments

BTC price focus on US liquidity trend

As Cointelegraph reported, a silver lining for crypto and risk assets could come in the form of increasing global liquidity.

In the US, the Fed has already begun to loosen tight financial policy, with bets on a return to so-called quantitative easing (QE) varying.

“How long until the Powell printer starts humming?” Edwards queried.

M2 money supply, meanwhile, is due for an “influx,” something which has historically spawned major BTC price upside.

“The BIG takeaway (the most important observation) is that a big M2 influx is coming. The exact date is less important,” analyst Colin Talks Crypto predicted in an X thread this week.

A comparative chart hinted at a potential BTC price rebound by the start of May. Bitcoin Price Risks Drop to $71K as Trump Tariffs Hurt US Business Outlook_3

Bitcoin Price Risks Drop to $71K as Trump Tariffs Hurt US Business Outlook_3

US M2 money supply vs BTC/USD chart. Source: Colin Talks Crypto/X

Source: Cointelegraph

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Warren Takunda

Economic

Keir Starmer has told heads of business in Downing Street that “clearly there will be an economic impact” from US tariffs but that ministers would respond with “cool and calm heads”.

The prime minister gathered senior business figures in No 10 after Donald Trump announced he would introduce 10% blanket tariffs on imports from the UK, and 25% on car imports.

Ministers have taken heart from the fact that 10% is the lowest rate imposed by the US and compares with 20% for the EU.

Starmer told business officials that Trump “acted for his country, and that is his mandate. Today, I will act in Britain’s interests with mine.” The prime minister said that while the tariffs were “a challenge”, the UK was in a “better position than a lot of other countries from what was announced last night”.

Jonathan Reynolds, the trade secretary, told broadcasters that the government would not retaliate immediately and was pursuing an economic deal with the US to remove Trump’s tariffs.

“I hope perhaps if we are successful there will be a template for other countries to resolve some of these issues,” Reynolds told Sky News.

“There’s a set of complaints from the US on some of how the current global trading arrangements work. They won’t get their own way on all of that. But there are some things to talk about,” he said. “And I do hope there’s a chance to take some lessons from that if we are successful for the wider world economy.”

The US treasury secretary, Scott Bessent, warned countries on Wednesday night not to retaliate and said that “as long as you don’t retaliate this is the high end of the number”.

Asked about Bessent’s remarks, Reynolds indicated that the UK was not planning to retaliate immediately but that ministers would not “rule anything out”.

Reynolds said: “We in the UK will take any action we need to give ourselves the tools that we need to respond to announcements of this kind.

“Whilst we have a chance of making the relationship between the UK and US even stronger than it is, the message I get very strongly from businesses is remain at the table, don’t overreact, stick with the calm-headed approach the government has had to date and we’re going to do that.”

The trade secretary struck an optimistic tone about the prospect of striking an economic deal with the US, saying he “absolutely” believed it could be done. “We have been able to progress talks on a range of areas on a timescale which to be honest has delivered in days and weeks more progress than we’ve had in years,” he told LBC.

Reynolds revealed, however, that Trump’s team had raised objections to UK food safety standards, reigniting long-running tensions over the UK’s ban on US chlorine-washed chicken and hormone-treated beef.

“We have a food standards regime which we’re very committed to in the UK which they have some objections to. So they put a number of factors into this,” Reynolds told BBC Breakfast.