Goldman Sachs Exchanges
How tariffs will impact the US economy
Mar 11, 2025
David Mericle, chief US economist at Goldman Sachs Research, delves into the intricate world of tariffs and their effects on the US economy. He discusses how these policies influence inflation, projecting shifts in core PCE inflation rates. The conversation highlights rising recession risks linked to current policies and what it means for GDP forecasts. Mericle also addresses the uncertainties surrounding trade relations with Canada and Mexico, examining their repercussions on business confidence and Federal Reserve strategy.
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Quick takeaways
- The recent tariff increases are expected to raise inflation expectations from 2.1% to around 3%, impacting consumer price adjustments.
- Forecasts for GDP growth have been reduced significantly from 2.2% to 1.7%, highlighting the adverse effects on disposable income and investment.
Deep dives
Impacts of Tariff Increases on the U.S. Economy
The recent tariff increases are projected to raise the effective tariff rate in the U.S. by approximately ten percentage points, significantly higher than prior estimates. This shift is driven by administrations' willingness to implement tariffs on critical imports, following initial moves on Canada and Mexico. As a result, expectations for inflation have also been revised, suggesting that instead of falling to an anticipated 2.1%, inflation may rise closer to 3%. This uptick is a one-time adjustment in consumer prices, but public awareness of tariffs suggests a potential for broader price increases.
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