We assume that the 90-day pause on reciprocal tariffs is mostly extended, keeping tariffs at 10% for countries except China, which will face a steeper 40% levy. Tariffs will not cause a recession – provided Congress can quickly redirect the tariff revenue back into the economy – though we expect growth to slow. We forecast GDP growth of 1.9% 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. Fears of second-round effects from tariff-driven price increases will keep the Fed on hold this year.
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