The uncertainty surrounding tariffs is expected to significantly reduce U.S. economic growth, increase inflation, and heighten overall economic risks, as highlighted by James Egelhof, chief U.S. economist at BNP Paribas.

According to a recent Reuters poll, economists predict a 45% probability of recession in the U.S. over the next 12 months, largely due to aggressive tariff policies.

Despite a temporary 90-day pause in tariffs imposed by President Trump, the ongoing trade war with China continues to negatively impact business sentiment and economic forecasts.

A consensus among 45 economists indicates that tariffs have adversely affected business sentiment, with nearly half describing the impact as very negative.

The U.S. economy's growth forecast for 2025 has been downgraded from 2.2% to just 1.4%, reflecting heightened economic uncertainty and challenges ahead.

Similarly, projections for economic growth in 2026 have been revised down from 2.0% to 1.5%, indicating ongoing difficulties.

Inflation expectations have risen sharply, with median forecasts suggesting inflation will remain above the Federal Reserve's 2% target until at least 2027.

Most economists anticipate that the Federal Reserve will keep interest rates between 4.25% and 4.50% until at least mid-2025, with many predicting rates will stay at 3.75% or higher by the end of that year.

Federal Reserve Chair Jerome Powell has warned that tariff policies could push inflation and employment further from the Fed's targets, indicating a cautious approach to monetary policy.

Consumer sentiment remains extremely weak, leading households to be cautious about spending amidst rising prices, job uncertainties, and declining wealth.

Economists have also revised their consumer price index (CPI) forecasts upward by an average of 60 basis points, marking the largest monthly change since March 2023.

The heightened inflation expectations may limit the Federal Reserve's ability to implement more than two interest rate cuts before the end of 2025.