Key Takeaways
- Forecasters expect the economic shockwave from President Donald Trump’s trade wars to hit the economy soon, as reflected in “hard data” such as unemployment and inflation statistics.
- Some forecasts show inflation rising first, followed by a jump in the unemployment rate.
- Other measures that could take a hit include gross domestic product and consumer spending.
Important economic measures have stayed stable so far despite President Donald Trump’s trade wars, but economic forecasters say that could soon change.
Forecasters expect varied parts of the economy to show the strain of tariffs at different times in the coming months. Several forecasts anticipate inflation rising first, showing up in hard data this summer, followed by an uptick in unemployment as the economy slows down.
So far, there have been few signs that Trump’s historically high import taxes imposed over the last few months are affecting the economy. The unemployment rate stayed low at 4.2% in April, and inflation was less than expected over the last two months. However, economists are bracing for higher prices and an economic slowdown due to Trump’s tariffs.
Economists at Pantheon Macroeconomics expect 40% of the tariffs’ impact on prices to hit by July, and 70% by October, pushing up Americans’ cost of living, according to a commentary this week. And the unemployment rate will rise in the second half of the year, reaching 4.75% by the end of the year. The Pantheon forecast assumes the administration won’t impose any more tariffs and predicts the economy will avoid a recession.
Forecasters at Goldman Sachs predicted the economy will practically stall out starting in the second quarter of the year, with domestic final sales growing sluggishly at 0.7% over the year, down from the pace of more than 2% annual growth since 2023.
N onprofit economic research group The Conference Board anticipates inflation heating up in the year’s second quarter, with prices as measured by “core” Personal Consumer Expenditure inflation rising 3.1% over the year, up from 2.8% in the first quarter, and reaching 3.3% by the fourth quarter. They expect the unemployment rate to rise in the second quarter and continue to increase the rest of the year until it reaches 4.6%.
The temporary tariff agreement that the White House reached with China last week likely won’t be enough to prevent a tariff shock from hitting the economy, the Conference Board said. In addition to inflation and unemployment, the board’s forecast showed economic output as measured by Gross Domestic Product (GDP) will slow down later in the year.
“We estimate sizable shocks to growth, inflation, and employment in the coming months, even as the U.S. administration reached an agreement to significantly reduce tariffs on imports from China,” Conference Board economists wrote. “The Conference Board estimates tariffs may substantially lower GDP growth, raise inflation, weaken the labor market, and prompt Fed rate cuts.”
