Recent projections from Moody’s Analytics and other economic forecasters project a U.S. economic growth rate that is significantly subdued. One major force behind this shift is changing trade policies. The economy is still forecasted to grow for the rest of the year despite these hurdles. Recent inflation data bolsters this view and fits well with the Federal Reserve’s long-term target of maintaining inflation at 2%. There are still unknowns around the role tariffs would play on future inflation trends.
We agree with the Federal Reserve’s desire to continue a balanced monetary policy. So, too, are they continuing to chart a course through the challenges like tariffs and ever-evolving trade dynamics. Available at www.brookings.edu Brookings economic experts emphasize that slower growth doesn’t rule out positive growth altogether. Despite the resilience of these key economic sectors, there is still potential for the economy to experience broadly positive performance across a range of indicators.
Recent inflation reports have indicated significant progress, which may indicate a continuing return toward the Federal Reserve’s inflation target. This strongly hints that inflationary pressures are indeed stabilizing, consistent with a larger trend of moderation. Others call it a leap of faith — analysts caution that the outcome remains unclear. They warn that any new proposed tariffs would further increase price pressures throughout the economy.
Tariffs are an especially disruptive form of uncertainty, as they can shatter supply chains overnight. This failure leads to unacceptable disruptions that raise costs for businesses and taxpayers alike. As these trade policies take shape, economists have to keep a watchful eye towards what impact these actions could have on inflation and economic growth. The good news is that the Federal Reserve is aware of these challenges. It remains willing to pivot to the right strategies to keep stable economic conditions.
In addition, as we noted earlier this year, first quarter GDP data have a tendency to overstate the slowdown in economic activity. Revisions to these statistics would reveal a clearer picture of how well our economy is truly performing. This truly underscores the importance of ongoing, independent, and expert economic evaluations. Yet, these revisions will undoubtedly serve as an important guide for future economic forecasts, plans and strategies.
The relationship between trade policy and economic growth will require dramatic scrutiny as the business community and the consumer start to adjust to this new rule. Analysts are urging policymakers to consider the broader implications of tariffs on both domestic and international markets, as well as their potential repercussions for inflation.