Taking stock amid tariffs

Topical macro insights and investment commentary from Nuveen.

Liberation Day in the U.S. dished a hefty dose of tariff shock and awe, sending financial markets into a frenzy. President Trump announced a mix of broad and reciprocal tariffs far exceeding market expectations, prompting a rethink of the global economic outlook. Ongoing uncertainty on retaliatory and negotiating measures from the U.S.’s top trading partners creates a challenging backdrop. We take stock of the global outlook and how central banks could respond.

In a push to reindustrialize the U.S. economy, President Trump announced a minimum 10% tariff on all goods exported to the U.S. alongside additional duties for major trading partners including China, Japan and the European Union. While Mexico and Canada were excluded, both face earlier-announced tariffs. Despite the announcement of a 90-day pause on the reciprocal rates, collectively the measures will raise the effective U.S. tariff rates to levels not seen in a century and open the door to further rounds of negotiations and threats of escalation. This accelerated shift to greater economic autarky has broad implications for the global economy.

U.S. recession risks rising, but not yet base case

Leading U.S. economic indicators have been weakening and consumer confidence has been under pressure. U.S. households remain critical to the outlook. While backwards-looking employment data has shown resilience, the potential hit to wealth as stock markets tumble alongside elevated uncertainty could curtail spending. Ongoing uncertainty could derail capital spending, raising recession risks, and this is before incorporating any retaliatory measures of trading partners.

Front-loading import purchases ahead of tariffs and upside inflation risks mean the U.S. Federal Reserve will likely remain patient and await material signs of economic deterioration. The key risk is pronounced market dislocations that would warrant interventionist action. As of writing, liquidity across the U.S. fixed income market is uneven but short-term borrowing rates point to orderly price action, leaving the Fed on the sidelines.

Nuveen’s U.S. macro team are tentatively penciling in 0.7% growth for 2025, with the Fed poised to cut 100 basis points (bps) by end-2026. Ongoing uncertainty including retaliatory measures from top trading partners, however, leaves our forecasts fluid.

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