Business and economic analysts foresee that effect of tariffs on inflation dropping off drastically by the second half of 2026. This new perspective comes at a time when inflation expectations are already elevated. Yet they are projected to remain at this unprecedented height for at least a year or two. Experts have made the case that inflationary pressures from tariffs are real. They claim only 10% of the current inflation can be blamed on such trade policies.
Predictions also indicate that GDP growth is shaping up well for this year. The economy is on track to do within a few percentage points of its potential! The fourth quarter GDP growth rate is expected to be quite robust which is adding to a very positive economic picture. However, perhaps more importantly, they warn that there are serious material risks that could change the course of these rosy forecasts.
Now, inflation is in a state of worry, with expectations still high. The expected path of inflation indicates that it will likely remain somewhat higher than normal over the next two to three years, though uncertainty remains. More specifically, financial risks stemming from the commercial real estate and other sectors may present headwinds to sustaining robust growth and curbing inflation.
The predictions for GDP growth underscore our understanding of the economy’s potential speed limit. This type of understanding is critical to drive better economic policy in the future. Analysts caution against oversimplifying the relationship between tariffs and inflation. Tariffs have proven less impactful on inflation than previous alarmists had predicted. At their worst, they’re not hitting consumers’ wallets that hard.
The recent economy has been difficult, to say the least. Quarterly GDP forecasts will go a long way towards allowing us to monitor our progress and change course when needed. The relationship between inflation and GDP growth will remain a key area of debate between policymakers and economists for the foreseeable future.