The latest U.S. inflation report reveals a mixed picture of economic health. Consumer prices rose annually by 2.8%, still above the Federal Reserve’s target of 2%. However, a monthly decline in gasoline costs led to a lower increase of just 0.2% from January—the smallest growth recorded since October. While this drop may seem promising, the potential consequences of President Donald Trump’s erratic trade policies loom large.
New tariffs of 25% on steel and aluminum, coupled with retaliatory measures from Canada and Europe, threaten to disrupt this modest progress and strain households and economic growth. Warnings from the Federal Reserve’s Beige Book indicate that many businesses expect to pass increased costs from tariffs onto consumers, with some companies raising prices preemptively. A survey by the National Federation of Independent Business showed a significant rise in the number of companies planning to increase prices, raising concerns that core inflation—excluding food and energy—could climb from February’s rate of 3.1% towards 4%. Despite these challenges, there is a sliver of hope that heightened tariff tensions might prompt global trading partners to negotiate mutually beneficial outcomes that could eventually lower tariffs worldwide.
Recently, the Canadian province of Ontario backed down from threats to disrupt electricity supplies in exchange for the removal of tariffs on metals by Trump, hinting at possible diplomatic solutions. However, the unpredictable nature of trade policies has unsettled financial markets and raised the specter of recession. JPMorgan has elevated its forecast for a recession by 2025 to 40%, up from a previous estimate of 30%. While adjustments in the market may provide some relief, ongoing tariffs and restrictions pose a significant dual threat: rising costs and sluggish growth.
The current economic scene suggests that the favorable conditions once enjoyed are now fading.