Our economic outlook for the United States

Positive trade developments with China have lowered our assessment of where the United States’ effective tariff rate on its trading partners will stand at year-end, to a range just above 10%. Although elevated compared with last year, it is significantly lower than our assessment of around 20% immediately after the broad U.S. tariff announcement on April 2.

A trade truce on May 12 with China specifically, which included the lowering of U.S. tariffs on Chinese goods to 30% for 90 days, informs our revised outlooks for the U.S. economy. We now expect GDP growth of around 1.5% this year, or double our previous estimate. Although we anticipate the unemployment rate increasing from current levels, we no longer see it rising as high as 5%.

We expect the pace of inflation to increase too, though not to the levels we had envisioned pre-truce. We anticipate that goods prices will spike into the U.S. summer as tariff-induced price increases take effect. Leading indicators suggest some modest relief for shelter inflation later in the year, though potential developments with lumber tariffs present an upside risk.

The recent tariff developments should mitigate the severity of the challenges to the Federal Reserve’s dual mandate of ensuring price stability and supporting maximum sustainable employment. We continue to expect two quarter-point Fed rate cuts in the second half of the year. The Fed will have room to be patient with rate cuts if the labor market remains resilient.