Morgan Stanley Lowers U.S. Economic Growth Forecast Due to Tariffs and Rising Inflation

Morgan Stanley has revised its U.S. economic growth projections for 2025,
citing the negative impact of expanding tariffs
and the continued strength of the labor market,
which has driven inflation higher and increased pressure on economic growth.

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The Report

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The group, led by Chief Economist Michael T. Gapen,
stated that the expected impact of tariffs would materialize faster than previously anticipated.
Instead of having the greatest effect in 2026 as earlier estimates suggested, tariffs will now directly impact growth this year.

As a result, Morgan Stanley has lowered its forecast for U.S. GDP growth on a quarterly basis (Q4 2025 compared to Q4 2024) to 1.5% from 1.9%.
Additionally, the firm reduced its 2026 U.S. economic growth projection to 1.2%, down from a previous estimate of 1.3%.

The Report

The report also highlighted that potential trade policies under President Donald Trump could drive inflation higher,
further complicating the Federal Reserve’s efforts to control prices.

Despite these concerns, Morgan Stanley maintained its forecast that the Federal Reserve
will begin cutting interest rates by 25 basis points in June.
However, it noted that while markets may still expect three rate cuts in 2024,
these reductions could come later than current projections suggest.

Morgan Stanley Lowers Its U.S. Economic Growth Forecast

Morgan Stanley Lowers Its U.S. Economic Growth Forecast

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