Brokerage firm Citi on Thursday said that the United States cannot avoid slowdown in growth and a rise in inflation. The brokerage note comes in the backdrop of a 90-day tariff pause announced by US president Donald Trump.
Trump maintained a baseline tariff rate of 10 percent on most countries even after giving a 90-day reprieve on his Liberation Day reciprocal tariffs that ravaged the global financial markets.
However, Trump made China an exception while imposing additional levies on Beijing, taking the total tariff rate to 125 percent on Chinese imports. This came after Beijing retaliated previous U.S. duties with an 84 percent tariff rate on all US goods.
Analysts at the brokerage said that uncertainty over trade will persist and non- China imports may now surge. "We continue to expect the Fed to cut policy rates in May or June. Trump's 90-day tariff pause does not appear to affect duties on autos, steel and aluminum that are already in place.
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"It seems likely that the U.S. President blinked (when) confronted with a potential recession, a political backlash, a near equity bear market and the early warning signs of a financial crisis," Kyle Rodda, an analyst at Capital.com told Reuters.
Almost all U.S. Federal Reserve policymakers agreed at their meeting last month that the economy was facing growing risks of higher inflation along with weaker growth. According to the minutes released on Wednesday, "Participants assessed that uncertainty around the economic outlook had increased, with almost all participants viewing risks to inflation as tilted to the upside and risks to employment as tilted to the downside."
Additionally, Trump did not speak anything on Pharma tariffs. Earlier in the week, Trump had announced that the United States will soon impose major tariffs on pharmaceutical imports. Speaking at an event, he said the move is intended to encourage drug companies to shift their operations to the United States.
Meanwhile, US investment bank Goldman Sachs also expects the US economy to slow this year due to ongoing policy uncertainty, expecting additional sector-specific tariffs at a 25 percent rate.
Earlier, Goldman predicted a 65 percent chance of recession in the next 12 months, however after the Trump tariff pause, it reverted to 45 percent probability of recession within the next year. It now sees just 0.5 percent US economic growth in 2025.
The investment bank sees three rate cuts of 25 bps by US Fed in June, July and September. The next Federal Open Market Committee (FOMC) meet will take place between May, 6-7.
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