Instant Insight

30-Second Take

• The U.S. economy faces significant challenges due to the impact of tariffs, leading to revised growth forecasts.
• Economic growth is expected to slow down in 2025, with GDP growth projections cut sharply by the OECD.
• Supply and transportation disruptions are anticipated, affecting corporate earnings and market valuations.

Quick Brief

2-Minute Digest

Essential Context

The implementation of tariffs has led to a complex economic landscape. The OECD has cut U.S. economic growth forecasts to 1.6% in 2025 and 1.5% in 2026, significantly lower than the previous 2.8% GDP growth rate.

Core Players

• U.S. Federal Reserve – Key player in monetary policy adjustments.
• OECD – Organization for Economic Co-operation and Development, providing economic forecasts.
• Corporate Sector – Affected by supply and transportation disruptions.
• Consumers – Impacted by potential inflation and reduced economic growth.

Key Numbers

• 1.6% – Revised GDP growth forecast for 2025 by the OECD.
• 1.5% – Revised GDP growth forecast for 2026 by the OECD.
• 2.8% – Previous GDP growth rate.
• 4.6% – Atlanta Fed GDPNow estimate for second-quarter GDP, though underlying growth is expected to slow.
• 2.3% – Projected annualized pace of real GDP growth in 2025Q1 by the University of Michigan.

Full Depth

Complete Coverage

The Catalyst

The recent tariffs have triggered a series of economic adjustments. The first quarter of 2025 saw a negative 0.3% GDP due to increased purchases of foreign goods before the tariffs took effect. However, excluding these purchases, the underlying economic growth would have been positive.

The second quarter is expected to show a skewed GDP growth rate due to the reversal of this effect, with the Atlanta Fed estimating a 4.6% GDP growth, though the real underlying growth is projected to slow.

Inside Forces

Supply and transportation dislocations are anticipated to cause disruptions, leading to potential accounting adjustments and a slowing earnings-growth rate. This could disappoint investors and lead to a downward recalibration in market valuations.

The Federal Reserve is expected to make interest rate adjustments, with two 25 basis point cuts predicted in 2025 and two more in 2026, according to the University of Michigan’s forecast.

Power Dynamics

The economic slowdown and tariff impacts have significant implications for various stakeholders. The corporate sector faces challenges in maintaining supply chains and managing costs, while consumers may experience higher prices due to inflation.

The Federal Reserve’s monetary policy decisions will play a crucial role in navigating these economic challenges.

Outside Impact

The broader implications include a potential weakening of the labor market and increased inflation. The Conference Board notes that tariffs may substantially lower GDP growth, raise inflation, and weaken the labor market.

Global markets are also reacting to these changes, with potential ripple effects on international trade and economic stability.

Future Forces

Looking ahead, the U.S. economy is expected to experience a moderate growth pace. The University of Michigan projects the annualized pace of real GDP growth to slow marginally in 2025Q2-Q3 to around 1.9%, before slightly increasing to 2.2% in 2026 due to lower taxes and interest rates.

The unemployment rate is expected to edge up from 4.0% in 2025Q1 to 4.1% in 2025Q2.

Data Points

• 2025Q1: Negative 0.3% GDP growth due to pre-tariff purchases.
• 2025Q2: Expected 4.6% GDP growth according to Atlanta Fed GDPNow estimate.
• 2025: Two 25 basis point interest rate cuts predicted by the University of Michigan.
• 2026: Two additional 25 basis point interest rate cuts predicted.
• 1.9% – Projected annualized pace of real GDP growth in 2025Q2-Q3.
• 2.2% – Projected annualized pace of real GDP growth in 2026.