Description
The US economy will slow sharply this year, as new tariffs and other American policy shifts dampen activity and fuel high global uncertainty. Average annualized growth is projected to step down from 2.5 percent in 2024 to just 0.1 percent in 2025, with the probability of a recession over the next 12 months at 40 percent. The tariffs are raising prices, disrupting supply chains, and eroding real incomes. Meanwhile, frequent changes to the announced tariff plans are making it harder for businesses to plan and invest.
Adding to the drag on the US economy is the uncertainty fueled by federal government layoffs and operational disruptions tied to the new Department of Government Efficiency. A large fiscal legislative package expected later this year will likely weigh modestly on demand relative to current policies: The expected extension of the 2017 tax cuts will have a roughly neutral effect, and any additional tax relief appears set to be slightly outweighed by spending reductions.
Financial markets have reacted negatively to recent policy changes, though spending and employment remain relatively firm. That resilience may reflect, in part, a shift in timing as households and businesses pull forward purchases in anticipation of higher prices.
This PIIE Chart is adapted from Karen Dynan’s blog post “Policy shocks and rising uncertainty are weakening the global outlook.”
