Economic Update Following Tariff Adjustments
EJ Antoni, a senior fellow at Unleash Prosperity, has provided insights on the new Republican tax bill during a segment on Varney & Co., prompting a discussion about the current state of the US economy.
JP Morgan has adjusted its outlook on the likelihood of a recession in the US, specifically after President Donald Trump announced a temporary reduction in tariffs on Chinese imports.
On Monday, Trump revealed a plan to lower “mutual” tariffs, aiming to reduce the overall tariff rate on Chinese goods from 145% to 30% within three months, while negotiations continue for longer-term agreements. Correspondingly, China has also cut its retaliatory tariffs on US products from 125% to 20% for the same period.
Michael Ferroli, an economist at JP Morgan, stated that the easing of some of the stricter tariffs on China decreases the recession risk for the US economy this year. He projected GDP growth to be between 0.2% and 0.6% for the fourth quarter, which is a slight adjustment from previous forecasts.
Ferroli noted that while the recession risk is still present, it has dipped below 50%. Prior estimates had placed the chance of a recession at 60% soon after the tariff announcements.
White House Targets Tariff Reductions
The analysis from JP Morgan suggests that the Personal Consumption Expenditure (PCE) index, which the Federal Reserve uses to gauge inflation, is expected to be at 3.5% by the end of the year. This is a decrease from a previous estimate of 4%, though it remains above the Fed’s target of 2.2% at the year’s start.
This 3.5% PCE reading is considerably higher than the Fed’s target, indicating that interest rate cuts might be slowed unless the labor market shows signs of worsening. The unemployment rate was 4.2% in April, with predictions that it may peak at 4.8% by mid-2026.
China Critiques US-UK Trade Agreements
Ferroli shared an outlook that anticipates a slight decline in employment later this year, attributing this to labor supply outpacing demand. He suggested that the Federal Reserve might delay further interest rate cuts, pushing back the timeline from September to December.
He added that since December, there have been three consecutive interest rate cuts, projecting the federal funding rates to decrease to between 3.25% and 3.5% by the second quarter of 2026.
Trump on Chinese Trade and Market Opportunities
The report indicates that the recent tariff shifts have significantly lowered the average effective tariff rate from approximately 24% to around 14%. This reduction is striking, particularly compared to the average of 2.3% seen in 2024.
Ferroli emphasized that, as tariffs are a form of tax, this change translates to nearly a $300 billion tax cut based on previous expectations, although much of that burden is likely felt by US consumers through higher prices.
He believes this tax shift may spur some easing in consumer spending, revising the growth outlook from a modest contraction to a slight growth for the latter half of the year.
