U.S. stocks steady; Cook’s dismissal, Nvidia earnings in spotlight
Investing.com - Analysts at BofA have slashed their U.S. growth forecast for the next two years, flagging that elevated U.S. tariffs and uncertainty around the Trump administration’s trade policy may lead to "significant stagflation."
Earlier this month, President Donald Trump unveiled increased duties on many countries, citing the need to rebalance perceived unfair trade practices, reshore manufacturing jobs, and boost government revenue.
However, following deep ructions in stock and bond markets, Trump announced a 90-day delay to the tariffs, and has suggested that the White House is looking to secure dozens of trade deals with individual nations. Trump and his other White House officials have particularly appeared to take a softer approach toward China, bolstering hopes for a trade detente between the world’s two largest economies.
Still, economists have flagged that Trump’s tariffs stand to push up inflation and weigh on growth in the U.S., and potentially spread to other parts of the global economy. Businesses, meanwhile, have warned that uncertainty around the on-and-off levies has made it difficult to plan out future investment decisions.
Against this backdrop, the BofA analysts led by Aditya Bhave lowered their fourth quarter-to-fourth quarter growth forecast this year by 80 basis points to 1.0%. The outlook for 2026 was also brought down by 30 basis points to 1.7%.
Core personal consumption expenditures inflation -- a measure of price growth closely monitored by the Federal Reserve -- is also tipped to peak at 3.5%. The Fed is expected to keep interest rates unchanged in 2025, but reduce them by 100 basis points in the second half of next year.
They added that a lack of clarity around Trump’s tariff agenda could trigger stagflation -- a period of stubborn inflation and tepid economic activity. There is also a 35% chance of the U.S. economy sliding into a recession, the analysts said.
"Our base case assumes moderate tariff de-escalation, profligate fiscal policy and a labor supply shock due to immigration restrictions," they wrote.