U.S. Economic Forecast: Stagflation on the Horizon

On March 28, 2025, President Donald Trump addressed the press aboard Air Force One as concerns grew over the potential for stagflation in the U.S. economy. Recent updates have highlighted a combination of policy uncertainty and new tariffs that are contributing to a bleak economic outlook, as reported by a recent CNBC analysis.

Current Economic Trends

According to a consensus of 14 economists surveyed in the CNBC Rapid Update, the U.S. economy is projected to experience minimal growth in the first quarter of 2025, with gross domestic product (GDP) expected to increase by only 0.3%. This marks a significant decline from the 2.3% growth noted in the previous quarter, representing the most sluggish pace since the recovery phase following the COVID-19 pandemic.

Inflation rates, measured by the Core Personal Consumption Expenditures (PCE) index, are anticipated to hover around 2.9% for much of the year before showing signs of decline in the last quarter.

Consumer and Business Sentiment Declines

The downturn in growth forecasts correlates with new data indicating a deterioration in consumer and business confidence. The U.S. Commerce Department reported a meager inflation-adjusted consumer spending increase of just 0.1% in February, following a 0.6% decline in January. Action Economics has revised its spending growth predictions for this quarter down to just 0.2% from a previous estimate of 4% growth in the previous quarter.

Import Surge and Its Economic Impact

Economic analysts have also noted a surge in imports, which negatively affects the GDP figure. This rise in imports seems to be a strategic response to the forthcoming tariffs. Barclays emphasized that the signs of slowing hard economic data are becoming increasingly clear, further complicating growth prospects.

Notably, although three out of twelve economists in the survey foresee negative growth in the first quarter, expectations remain optimistic that GDP will rebound in the second quarter, with estimates averaging at 1.4% growth as the impact of imports stabilizes.

Recession Risks and Future Projections

While optimism persists, there are fears that the anemic growth could easily slip into negative territory. As new tariffs are set to be implemented soon, uncertainty looms over future growth. Mark Zandi from Moody’s Analytics warned that while the baseline forecast does not predict a decline in GDP, the escalating global trade conflict and subsequent job and funding cuts push the likelihood of a recession higher if policy adjustments are not made by the third quarter.

Inflation Challenges Ahead

The challenge of persistent inflation also constrains the Federal Reserve’s ability to implement rate cuts in response to slow economic growth. The current forecast suggests Core PCE inflation rates could remain stubbornly high, increasing to around 3% in the next quarter, before a projected decline to 2.6% within a year.

Given these projections, markets might expect interest rate cuts; however, achieving this may be difficult without clear evidence of diminishing inflation by year-end.

Conclusion

The intersection of new tariffs, stagnant economic growth, and stubborn inflation presents a complex landscape for the U.S. economy. While there are forecasts for recovery in the latter half of 2025, stakeholders are closely monitoring consumer sentiment and policy responses as key indicators for future economic health.