Barclays economist Jonathan Millar has revamped his evaluation of the U.S. economy, cautioning that President Trump’s extensive tariff policies have triggered an unforeseen stagflation shock. Millar’s latest insights indicate that the reciprocal tariff package now sets a trade-weighted duty rate of approximately 23%, up about eight percentage points from earlier predictions, amplifying risks tied to increased inflation and recession in the latter half of the year.

Economic Forecast Highlights

• GDP Outlook:
  Barclays anticipates a contraction in U.S. GDP during the second half of 2025, reflecting a slower growth trajectory due to mounting cost pressures and a potential decline in global trade.

• Unemployment Rate Projections:
  Forecasts indicate that unemployment may rise to 4.7% by early 2026 as businesses confront decreased demand coupled with heightened cost burdens.

• Inflation Predictions:
  Core PCE inflation is expected to reach 3.7% year-over-year by Q4 2025, considerably above the Federal Reserve’s 2% target, with a moderation to 2.7% in Q4 2026.

• Federal Reserve Influence:
  Amid inflationary trends, Millar predicts the Fed may still execute two 25 basis point cuts in rates each year, despite President Trump’s calls for further reductions.

Market Reactions and Employment Data Trends

The recent stagflation shock has already unsettled equity markets, as investors grasp the implications of a more aggressive tariff landscape. Although labor market data from March revealed significant job gains, showcasing resilience against rising costs, markets remain anxious about a possible recession.

Millar states, “Rising stagflation risks, marked by growth recession and squeezed profit margins, have compelled us to adjust our earnings expectations downward.”

Future Outlook

While the economic forecast remains bleak due to ongoing trade tensions and persistent inflation, the strong labor market provides a current silver lining. However, as pressures from cost-push inflation rise and growth uncertainties accumulate, the possibility of a more connected economic slowdown cannot be overlooked.

Barclays’ revised projections highlight that aggressive tariff measures can yield extensive consequences. As the U.S. maneuvers through these intricate economic challenges, stakeholders will closely observe critical metrics to determine whether this recent shock may evolve into a protracted downturn.