President Trump on Wednesday laid out his long-awaited plans to slap reciprocal tariffs on countries around the world — prompting warnings from Wall Street economists that the risk of a US recession just went up.
In a note published Wednesday, Oxford Economics economist Ryan Sweet said the economy has become “dangerously vulnerable” to a recession over the next 12 months, with the average US tariff rate set to rise to levels not seen in 100 years.
Sweet laid out three key factors in explaining his call: a greater boost to inflation, which would dampen real disposable income; tightening financial conditions, which could lead to further equity declines; and elevated trade policy, which will “suffocate” business investments and weigh on hiring.
Oxford revised its 2025 GDP growth outlook to 1.4%, down from its prior 2% forecast. Core inflation is expected to rise to 3.9% this year compared to the prior 3.1%, according to the firm.
In other words, the risk of stagflation is showing up more firmly in Wall Street’s projections.
Stagflation — a bleak economic scenario in which growth stalls, inflation persists, and unemployment rises — has become the latest buzzword in financial markets following a string of disappointing data releases, the Trump administration’s shifting trade narrative, and other policy unknowns, including recent efforts to cut government jobs from Elon Musk’s Department of Government Efficiency (DOGE).
Read More: What is stagflation, and how does it impact you?
Last week, data released by the Bureau of Economic Analysis showed consumers spent less than forecast in March while inflation rose more than anticipated — a sign that stagflation cracks are beginning to show up in hard economic data, or objective metrics. That coincided with weak survey and sentiment readings, often referred to as soft economic data, which highlighted increased pessimism on the outlook for inflation and the US labor market.
Notably, the Federal Reserve has maintained a base case that tariff-induced inflation will be “transitory” and, therefore, have a short-term impact on price growth. This was reflected in the central bank’s latest projections, which forecast year-end PCE inflation rising to 2.7% before reaching its 2% target by 2027.
But economists have argued “transitory” inflation remains an unrealistic expectation and that the Fed has underestimated the extent to which tariffs are likely to push up inflation.
EY economist Greg Daco projected that the expected increased cost of imports would represent an annual income loss of $690. For lower-income families, the loss would surpass $1,000.
