Home Insights Macro views The macro fallout from ‘Liberation Day’

The macro fallout from ‘Liberation Day’

Quick takes on capital markets

April 4, 2025 | 2 min read
Christian Floro, CFA, CMT
Market Strategist
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This week’s announced trade tariffs were much more severe than expected, heightening already germinating fears about lower growth and higher inflation—i.e. stagflation. Odds of a recession have risen, and markets will likely be challenged until the more growth-friendly element of the administration’s agenda comes into play.

The size and scope of the tariff announcement overwhelm the trade actions implemented during the 2018 Trade War, bringing average U.S. tariff rates even higher than those seen during the Smoot–Hawley Tariff Act of 1930. As a result, heightened worries about economic disruption have erupted.

The tariffs represent the largest U.S. tax hike in modern history, and the impact on consumers could be severe. We estimate the resulting hit to U.S. GDP growth at around 2.4%, with more considerable fallout if trade partners retaliate. The odds of a U.S. recession are higher as a result.

Additionally, with roughly 6% of personal goods consumption tied to imports, the tariffs alone could boost inflation by as much as 1.4%. Core CPI could trend back toward 4% by year-end, reversing progress containing inflation and weighing on real purchasing power.

Slowing growth and rising inflation create an increasingly uneasy macro environment that resembles stagflation, even if it doesn't fully meet the definition. This mix only adds complexity to the policy outlook.

While markets are likely to remain risk-off in the near term, as the administration’s focus eventually pivots away from trade, progress on more growth-friendly policy items, such as tax cuts and deregulation, could steady market sentiment, enabling investors to look beyond the destructive trade headlines that dominated the past two months and culminated—maybe—with this week’s announcement.

For more on tariffs, recession prospects, and what it all means for markets and portfolios, read Liberation Day: Market uncertainty, global growth concerns, and U.S. recession fears.

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