Trump’s Tariffs: Recession Fears Ease, But Storm Clouds Remain on the Horizon
Washington D.C. – Wall Street is breathing a collective sigh of relief as President Donald Trump’s proposed tariffs on incoming goods appear to be settling at a less severe level than initially feared. While still a significant increase from earlier in the year, the U.S.-european Union trade deal struck over the weekend has tempered the most dire recession predictions, offering a glimmer of optimism for the U.S. economy.
Economists had been bracing for a significant economic downturn following Trump’s April 2nd “liberation day” announcement, which threatened a significant escalation of tariffs.The fear was that these levies would trigger a surge in inflation, ultimately leading to a pronounced slowdown or even a recession. However, these “doomsday pronouncements” have largely subsided, replaced by a more nuanced outlook.
Several factors are contributing to this shift in sentiment. A robust global growth backdrop, a less impactful inflationary effect from the tariffs than initially anticipated, and a general easing of financial conditions are all cited as reasons for the improved economic landscape.
JPMorgan Chase, a bellwether for financial sentiment, has notably revised its recession risk assessment. The bank has lowered its forecast from a daunting 60% on “liberation day” to a still-elevated but more manageable 40%.
“Tariffs are a tax hike on U.S. purchases of foreign goods, but this tax drag is not likely to be large enough to derail the U.S. expansion,” stated Bruce Kasman,chief economist at JPMorgan. He added that what was expected to be a damaging round of global retaliation has instead evolved into a “modest step toward opening markets for the U.S.”
Tariffs Still a Potential Drag on Growth
Despite the easing of immediate recession fears, the consensus on Wall Street remains that tariffs still pose a significant risk to sustained economic growth. Morgan Stanley strategist Michael Zezas echoed this sentiment, predicting a future of “slow growth and firm inflation.”
“Not a recession, but a backdrop where the adverse effects of trade and immigration controls on growth outweigh the boost from deregulation and fiscal largesse,” Zezas wrote in a recent note.
The final outcome of ongoing trade negotiations remains uncertain. Several critical issues are still on the table, wiht an August 1st deadline looming. Any further aggressive moves in these trade skirmishes could “easily tip the scales toward a mild recession,” Zezas cautioned.
However, he also noted that with greater clarity on the fiscal situation and deficits now more front-loaded, the risk of a “substantial recession is easing.”
The U.S.-Europe deal will undoubtedly be a key consideration for the Federal Reserve as it convenes this week to discuss the impact of tariffs on inflation. The Fed has maintained its benchmark short-term interest rate steady since President Trump took office, largely due to concerns about the inflationary consequences of trade policies. This latest development may provide the Fed with more room to maneuver, but the lingering uncertainty surrounding future trade actions ensures that caution will remain the watchword.What This Means for you:
Slightly less inflation pressure: While tariffs are still in place, the immediate shock to prices appears to be less severe than initially feared.
Continued economic expansion, but at a slower pace: The U.S. economy is expected to continue growing, but the pace may be moderated by ongoing trade tensions.
* Federal Reserve watching closely: The Fed’s decisions on interest rates will continue to be influenced by the evolving trade landscape.
Stay tuned to World Today News for ongoing coverage of these critical economic developments.
