Jonathan Millar, an economist at Barclays, said that the new tariffs imposed by the US administration, announced on “Deregistration Day,” created an unexpected inflationary shock. This trade conflict has increased the risks of higher inflation and a recession expected later this year.
Tariffs Reverberate on Global Markets
The new package of reciprocal tariffs implies a trade-weighted tariff rate of about 23%. This rate is about eight percentage points higher than the bank’s previous estimates. The administration’s tariffs ranged from 10% to 50%, with a few exceptions for certain sectors such as energy and essential imports. Despite the exemptions for Mexico and Canada, the impact on Asian economies is expected to be significant.
In a note, Millar said: “The administration’s ‘Deregistration Day’ announcement imposed unexpectedly large tariffs on most trading partners, contributing to a larger-than-expected inflationary momentum.” This announcement had a direct impact on stock markets, which ended the week with a significant decline, as investors began to absorb the potential consequences of tariffs on global trade and the domestic economy.
Expectations of a Decline in GDP and a Rise in Unemployment
In light of these developments, Barclays Bank revised its forecasts for the US economy. The bank expects US GDP to contract in the second half of 2025, with the unemployment rate estimated to reach 4.7% by early 2026. This contraction in economic activity will coincide with repercussions of the global trade crisis.
Rising Inflation and Interest Rate Cuts
At the same time, the bank significantly raised its inflation forecasts. Economists expect core personal consumption expenditures (PCE) inflation to reach 3.7% year-on-year in the fourth quarter of 2025 and then decline to 2.7% in the fourth quarter of 2026. Despite rise in core inflation, the Federal Reserve, led by Jerome Powell, expects to cut interest rates twice a year through 2026.
March labor market data remains strong
Despite the deteriorating macroeconomic situation, labor market data for March showed remarkable resilience. Millar confirmed that the labor market remained strong, with jobs seeing a sharp rebound. However, he noted that the weather fluctuations at the beginning of the year may have impacted some areas. While previous data revisions indicate minimal impacts from these weather conditions, the overall labor market picture remains positive.
Long-Term Labor Market Challenges
On the other hand, the federal job cuts have not had a significant impact so far. However, given the current economic situation, longer-term measures may be required to ensure sustained labor market growth.
With economic risks escalating due to trade tensions, experts expect these shifts to have far-reaching effects on the US economy. Some believe that inflation may continue to weigh on businesses and consumers, while financial markets may experience additional volatility due to the Federal Reserve’s monetary policy.
Trump’s Pressure on the Fed’s Decisions
Despite pressure from US President Donald Trump to push the Federal Reserve to further cut interest rates, the Fed appears to be holding its ground with caution. While some view a rate cut as a necessary step to stimulate the economy, the Federal Reserve is adopting a more dovish approach focused on price stability and maintaining a strong dollar.
The Fed’s forecasts indicate that interest rate cuts will be slow and balanced, commensurate with the economic risks posed by rising inflation and the global trade crisis. The current situation requires consideration of many factors, from the impact of tariffs on markets to the effects associated with unemployment rates and economic growth.
Inflation and Recession: Can the Worst Be Avoided?
This comes in the face of increasing pressure from the White House, which is calling for further interest rate cuts. This trend indicates that the Federal Reserve is seeking to strike a balance between supporting economic growth and achieving price stability.
Inflation and recession pose a real threat to the US and global economy in the near future. While some analysts suggest that the economic situation could deteriorate if tariffs and rising costs persist, others believe that the monetary measures adopted by the Federal Reserve may be able to mitigate the effects of these pressures on the economy.
The economy is likely to continue to face temporary fluctuations, but with concrete solutions from monetary institutions, markets may be able to overcome these challenges. Although the repercussions of the trade dispute may be severe, measures taken at the governmental and economic levels may limit the worsening of the situation.
Prospects for Financial Markets
There is no doubt that the impact of tariffs will be felt in financial markets in the coming months. As economic pressures persist, investors will face significant challenges in making sound investment decisions. However, the US economy will remain resilient if policymakers take balanced steps to maintain market stability and reduce the risks of inflation and recession. Ultimately, sectors that adapt to economic challenges, such as technology and renewable energy, will create new opportunities, offering hope that the future will bring innovative solutions to many of today’s economic issues.
Economic developments continue to significantly impact global markets. Ongoing trade tensions with China and the European Union will likely impact future economic growth. Despite this, many hope that prudent fiscal and monetary policies can overcome these crises.
