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Investing.com -- The recently passed “One Big Beautiful Bill” (OBBB) will offer only modest support to U.S. economic growth, with Morgan Stanley (NYSE:MS) forecasting a 0.4 percentage point boost to real GDP in 2026 and 0.2% in 2027.
While the bill front-loads deficits through tax cuts and delays spending cuts until later years, Morgan Stanley believes the fiscal impulse “will not be sufficient to offset the direct and indirect effects of tariffs and immigration controls.”
The firm added, “Those looking for a significant fiscal impulse to growth from the OBBB are likely to be disappointed.”
The analysis comes amid a wave of new tariff threats from the Trump administration. By week’s end, around 20 trading partners, including South Korea and Japan, had received letters warning of tariffs between 25% and 50% starting August 1.
If implemented, the effective tariff rate would jump to 17-18%.
Despite these developments, Morgan Stanley made no changes to its baseline growth outlook, citing potential “off ramps” before the tariffs take effect.
However, the firm warned that risks to inflation remain tilted to the upside, as the new tariffs may “keep inflation meaningfully above 2% well into 2026.”
Morgan Stanley also noted the limitations of fiscal policy. “Fiscal multipliers are unfavorable—the contractionary policy measures tend to be more impactful than expansionary ones.”
The firm estimates a best-case fiscal impulse of 0.9pp in 2026, with a downside of -0.1pp.
In summary, while the OBBB offers some short-term support, Morgan Stanley continues to expect a “slow-growth, firm-inflation economy” driven by the combined effects of trade, immigration, fiscal, and regulatory policies.