Despite Trump's Pivot, U.S. Economists Are Bracing for a Sharp Slowdown

Wall Street economists are sticking with their projections for a significant deceleration in U.S. economic growth, warning that recession risks remain high, even after the Trump administration moved to delay some of its most aggressive tariff plans.

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Major financial institutions including Morgan Stanley, BNP Paribas, RBC Capital Markets, Barclays Plc, and UBS released updated GDP forecasts late this week. Their projections for U.S. economic growth in 2025 range from a slight contraction of -0.1% to a modest increase of 0.6%. For 2026, they expect growth between 0.5% and 1.5%. In tandem, the unemployment rate is projected to rise to around 5% next year, while inflation is expected to climb over the coming quarters.

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This cautious economic outlook contrasts with recent stock market performance. U.S. equities surged after President Donald Trump announced a 90-day delay on previously planned “reciprocal” tariffs for many nations (excluding China), while simultaneously raising tariffs on Chinese imports to 145%. The stock rally suggests a more optimistic view among investors, at least in the short term.

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However, despite the short-term relief for global markets, economists point out that the average U.S. tariff level remains exceptionally high — roughly the highest it’s been in over a century. Bloomberg Economics estimates the current average tariff rate has only slightly declined, now sitting at about 26.25%, down marginally from 26.85% before the recent announcement. That still marks a nearly 24 percentage point increase compared to when Trump first took office.

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BMO Financial Group Chief Economist Douglas Porter emphasized that if these elevated tariffs and trade uncertainties continue, the risk of a U.S. recession would grow considerably. “At this point, we are still leaning toward multiple quarters of sub-1% GDP growth,” Porter noted in a Friday report.

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For economists, the sharp tariff hike on Chinese goods largely cancels out the positive effects of suspending duties on other trading partners. Since China plays such a significant role in U.S. imports, the weighted average impact of the tariff changes remains tilted toward economic strain.

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Barclays economists echoed this concern, stating that although the higher tariffs might shift trade away from China and toward countries with lower tariffs, the overall outcome still points to heightened stagflation pressures in the U.S. They reiterated their prediction that the country is heading into a recession.

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Even analysts who are not forecasting an outright economic contraction acknowledge that the risks remain elevated. Goldman Sachs, for instance, currently sees a 45% chance of recession over the next year. That’s a slight improvement from their previous 65% estimate, thanks to the temporary tariff reprieve.

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Still, other experts believe a downturn remains more likely than not. JPMorgan Chase Chief U.S. Economist Michael Feroli suggested Wednesday that the firm would revise its projections in light of Trump’s announcement but added that “a contraction in real activity later this year is more likely than not.” His remarks underscore the thin line between weak growth and outright recession in the current climate.

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New York Federal Reserve President John Williams also weighed in on Friday, predicting that real GDP growth would slow significantly — likely falling below 1%. Williams said the unemployment rate is expected to rise from 4.2% in March to between 4.5% and 5% over the next year. Meanwhile, he anticipates inflation climbing to between 3.5% and 4%, well above the 2.5% level seen in February. These projections align closely with Wall Street’s broader economic consensus.

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Despite the economic gloom, financial markets reacted positively to the pause in tariff hikes. The S&P 500 jumped 7.6% from Tuesday’s low to the end of the week, although it still sits nearly 13% below the all-time high reached in February. Volatility continues to define market sentiment, and investors remain cautious as they assess the long-term implications of the new trade environment.

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UBS Chief U.S. Economist Jonathan Pingle cautioned against underestimating the broader economic implications of the current trade policy. “The magnitude and scale of what is unfolding appears underappreciated,” he wrote Friday.

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To put it into perspective, Pingle highlighted that U.S. goods imports totaled $3.2 trillion in 2024 — a figure larger than the entire French economy and just shy of the U.K.’s. “Even after this week’s announcements, the U.S. appears willing to impose tax hikes on an amount equal to the size of a major developed economy — multiplied eightfold,” he said.

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In sum, while Trump’s tariff pause provided temporary relief to markets, economists remain largely unconvinced that the outlook for the U.S. economy has materially improved. Most still expect slow growth, rising unemployment, and persistently high inflation — and believe the risk of recession remains very much on the table.

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