By Ann Saphir
(Reuters) – Tamer-than-expected inflation and a significant de-escalation of the U.S.-China trade war are easing fears of a sharp economic squeeze on American households and businesses. This has prompted Wall Street firms to lower recession predictions and has given the Federal Reserve room to maintain current interest rates.
JP Morgan Chase (NYSE:JPM) and Barclays revised their forecasts on Tuesday, reflecting a more optimistic economic outlook following a recent U.S.-China agreement to reduce tariffs implemented since early April.
JP Morgan economists now see recession risks as below 50%, while Barclays no longer includes a recession in its forecasts. Previously, high tariffs were expected to dampen consumer and firm spending.
Financial markets responded to the U.S.-China agreement by significantly reducing expectations for Federal Reserve interest rate cuts, anticipating only two cuts by the end of the year, starting in September.
A Labor Department report indicated that consumer prices rose by 2.3% in April, the smallest year-over-year increase in over four years. This data reinforced market expectations for gradual rate cuts later this year, rather than aggressive preemptive actions.
Jake Dollarhide, CEO at Longbow Asset Management, mentioned that while there are concerns about future tariffs impacting inflation, the current data brings relief as inflation trends in a favorable direction. However, uncertainty regarding tariff policies still leads some economists, such as those at Raymond James, to advise caution.
The Fed maintained short-term borrowing costs at the 4.25%-4.50% range since December. Fed Chair Jerome Powell noted no signs of an economy in decline and stated it was prudent to await clearer data before making rate adjustments.
Underlying consumer prices, excluding volatile food and energy costs, rose at a yearly rate of 2.8%. Certain goods, anticipated to face price hikes from tariffs, such as apparel and vehicles, either stayed flat or decreased, despite the implementation of more tariffs by U.S. President Donald Trump.
Economists expect that prices for goods might increase due to tariffs, despite a reduction from 145% on Chinese imports to 30% following the recent trade agreement. However, tariffs remain at historically high levels covering a broader range of imports than in the last 80 years.
The Trump administration has secured only one trade agreement since the inception of its tariff policy.
Gregory Daco, Chief Economist at EY, noted that with the lack of clarity on the long-term trade policy and Fed policymakers likely to wait on economic developments, they now anticipate only two Fed rate cuts, delaying the first to September instead of July.
Comments (92)
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21:06 - 26/05/2025
Nice
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12:57 - 26/05/2025
Interesting
Abdulkarim Adamu
11:09 - 26/05/2025
Indeed Sir
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06:06 - 26/05/2025
Is this trade war good for crypto or bad
luu
02:41 - 26/05/2025
Cool