Dive Brief:
- Nine out of 10 corporate economists expect that U.S. tariffs will push up inflation to 2.6% this year, well above the Federal Reserve’s 2% goal, and slow annual economic growth to 2%, Wolters Kluwer said Monday.
- Economists at companies ranging from Comerica to Ford Motor Co. and Visa to Eaton Corp. see a 31% probability of recession this year, a 6-percentage-point increase from last month, Wolters Kluwer found in a survey.
- “The whirlwind of policy changes, most notably on-again-off-again tariff increases, the associated threat of a global trade war, a potential army of unemployed government employees and possibly large declines in federal government spending have rocked both consumer and business sentiment and raised the specter of what might be called ‘“stagflation-lite,’” or a mix of high inflation and sub-par growth, Haver Analytics Senior Economist Sandy Batten said in a statement.
Dive Insight:
Fed Chair Jerome Powell on Friday affirmed his long-held view that inflation will gradually decline on a “bumpy” path before reaching the central bank’s target.
Powell noted the trend of improved price stability and signs of labor market strength and said
policymakers are in no hurry to alter the federal funds rate from its current range between 4.25% and 4.75%.
Moreover, the impact from tariffs, and planned changes in regulation, federal spending and immigration under the Trump administration is unclear, prompting a cautious approach to monetary policy, Powell said.
“As we parse the incoming information, we are focused on separating the signal from the noise as the outlook evolves,” he said. “We are not in a hurry, and we are well positioned to wait for greater clarity,” Powell said, adding “policy is not on a preset course.”
Economists currently expect the central bank will trim the benchmark interest rate by 0.42 percentage point this year, compared with predictions in November of reductions totaling 1.08 percentage points in 2025, Batten said.
The survey respondents predict “a much more restrained Fed going forward,” Batten said, and expect “a considerable hiatus before the next federal funds rate cut.”
None of the economists surveyed expect policymakers to alter the main interest rate at their March 18-19 meeting, Batten said.
Forty-three percent of the economists predict the Fed will next reduce borrowing costs by a quarter-point in June, and 50% predict the next reduction at a meeting after June, Wolters Kluwer found.
The consensus forecast for inflation “has risen meaningfully,” Batten said. “In answering a special question, 91% of respondents think that increased tariffs will significantly boost inflation.”
The central bank over the long term may struggle to curb inflation to 2%, economists indicated in the survey. They forecast that the personal consumption expenditures price index will average 2.2% from 2027 through 2036, according to Wolters Kluwer.
