The economic optimism that rose with Donald Trump’s return to the White House has taken a hit after the president announced new tariffs on Canada, Mexico, and China. US stocks had their worst day of the year on Monday, as personal spending fell in January despite elevated inflation.
The Federal Reserve Bank of Atlanta’s tracking model predicts an economy contraction in the first quarter, which would be the first since 2022. Analysts are warning of “stagflation” – a combination of slow growth and high prices that plagued the 1970s. Consumer confidence has declined, but job markets remain strong.
Trump’s tariffs could prove to be a negotiating tactic rather than an actual threat. Consumer confidence is prone to short-term swings, and recent data shows a decline in business expansion. However, the Atlanta Fed’s GDPNow tracker turned negative last week and may reverse course as more data are released.
Inflation remains elevated, with the Personal Consumption Expenditures index rising 2.5% in January, above the Federal Reserve’s 2% target. Despite this, personal spending fell by 0.5%, indicating that consumers are taking a wait-and-see approach to spending amidst uncertainty.
Source: https://www.bostonglobe.com/2025/03/03/business/trump-tariffs-economy-uncertainty