We are assuming that the 90-day pause on reciprocal tariffs becomes permanent, keeping tariffs at 10% for most countries except China which will face a steeper 60% levy. If Congress quickly redirects the tariff revenue back into the economy, a recession should be avoided - though growth will still slow, with Trump’s stricter immigration policy adding to the drag. We forecast GDP to grow by 1.7% this year, and around 1.5% in both 2026 and 2027. With the economy cooling rather than crashing, the Fed is likely to remain on hold in 2025, focused on preventing one-off tariff-driven price spikes from feeding long-term inflation, ahead of 50bp of cuts in 2026.
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