We assume that the 90-day pause on reciprocal tariffs will become permanent, keeping tariffs at 10% for most countries except China, which will face a steeper 40% levy. A recession should be avoided, provided Congress can quickly redirect the tariff revenue back into the economy – though growth should still slow. We forecast GDP to grow by 1.7% this year and 1.5% in 2026. With the economy cooling and risks of one-off tariff-driven price increases feeding into broader inflation, we expect the Fed to stand pat this year, before cutting by a cumulative 50bps in 2026.
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