Tariff negotiations rumble on, but our base case remains that the tariffs ultimately imposed will not cause a recession – though we expect growth to slow. We forecast GDP growth of 1.6% this year and 1.5% in 2026. Price effects have been limited so far, but core CPI inflation should pick-up once retailers and wholesalers deplete their existing inventory and cease absorbing the tariff costs as they await more policy certainty. Fears of second-round effects from tariff-driven price increases and a low unemployment rate will keep the Fed on hold this year.
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