Interest rate reduction by the Federal Reserve to the tune of one percentage point in 2023.
Revised Article:
Americans brace for economic turbulence as tariffs take a toll on the economy. Do these trade restrictions risk plunging the nation into a recession? A recent report indicates so.
The U.S. GDP shrank by 0.3% in the first quarter of the year, as businesses hurried to purchase imports ahead of President Trump's tariffs. Spending by consumers showed a significant decline, from a 4% pace last quarter to a 1.8% pace this time around.
Economists at Pantheon Macro argue that the economy had already started slowing by the end of the last quarter, and a period of stagnation seems imminent with the existing set of tariffs. A dire outcome looms if additional tariffs are enforced, with a recession appearing increasingly likely.
Tariffs, according to Fed officials, are set to push up inflation and slow the labor market. This predicament places the Fed in a bind as it can't simultaneously combat both issues.
As tariffs escalate, prices for consumers are expected to surge, potentially leading to a downward spiral in spending, a critical driver of growth. Moreover, tariffs and retaliatory actions could amplify market volatility, further straining economic growth.
Estimates suggest that the April tariffs reduced 2025 real GDP growth by 0.5 percentage points, while all tariffs of that year may bring this figure down by 0.9 percentage points. Over ten years, imports could drop by a staggering $6.9 trillion, reducing capital flows and productivity.
By incorporating these tariffs, the price level is predicted to increase by 3%, equals roughly a $4,900 loss per household in 2024 dollars. Sector-specific surges, such as a 65–87% spike in apparel and shoe prices short-term, are not out of the question.
It is crucial to recognize that tariffs can put households at risk. The April tariffs cost the average household $2,100 after an immediate 1.3% price increase. If more tariffs follow, this figure could rise to $2,200 per year for low-income families.
The historic parallel of a similar average tariff rate, the highest since 1901, increases the risk of stagflation—similar to what was seen prior to the Great Depression.
In conclusion, the U.S. economy stands on shaky ground following the implementation of tariffs. As the situation worsens, the danger of a recession increases, especially if external shocks or delayed monetary easing should appear. Simply put, tariffs are a powder keg, and a spark may set off a chain reaction that could have catastrophic effects on the American economy.
- Economists at Pantheon Macro anticipate a period of economic stagnation with the existing tariffs, and a recession could become increasingly likely if additional tariffs are enforced.
- The Fed is concerned that tariffs could push up inflation and slow the labor market, making it difficult to address both issues simultaneously.
- As tariffs escalate, prices for consumers are expected to surge, potentially leading to a downward spiral in spending, a critical driver of growth.
- Estimates suggest that the April tariffs reduced 2025 real GDP growth by 0.5 percentage points, and all tariffs of that year may bring this figure down by 0.9 percentage points.
- The historic parallel of a similar average tariff rate, the highest since 1901, increases the risk of stagflation, similar to what was seen prior to the Great Depression.
- The U.S. economy faces a critical risk as tariffs could put households at risk, particularly low-income families, costing them $2,200 per year if more tariffs are implemented.
