US tariff policies heighten inflation concerns amid slowing economic growth

Recent US trade policies, particularly the imposition of tariffs, have intensified inflation concerns among American consumers and investors, even as economic indicators suggest a slowdown in growth.

The US department of Commerce reported on Thursday that the US economy contracted at an annualized rate of 0.2 percent in the first quarter of 2025, a slight revision from the previously estimated 0.3 percent decline. This marks the first economic contraction in three years, attributed primarily to a surge in imports that widened the trade deficit and subtracted 4.9 percentage points from GDP, and a fall in government spending.

Inflation remains a pressing concern. The core Personal Consumption Expenditures (PCE) price index, a key inflation measure for the Federal Reserve, was revised to show a 3.4 percent annualized increase in the first quarter, slightly down from the initial estimate of 3.5 percent. Despite the modest revision, inflation pressures persist at elevated levels, with all eyes on the April PCE data scheduled to be released on Friday.

Federal Reserve officials have expressed caution, citing "exceptionally high" uncertainty about the economic outlook, according to the minutes from its May Federal Open Market Committee (FOMC) meeting. They emphasize the need to wait for clearer signs of inflation and economic trends before making policy adjustments.

Federal Reserve Bank of Atlanta President Raphael Bostic prefers only one interest-rate cut this year due to uncertainties over growth and inflation.

Consumer sentiment has also been affected. The Conference Board reported the Expectations Index—based on consumers’ short-term outlook for income, business, and labor market conditions—surged 17.4 points to 72.8, but remained below the threshold of 80, which typically signals a recession ahead.

Jamie Dimon, CEO of JPMorgan Chase, warned of the potential for stagflation—a combination of stagnant economic growth and high inflation. Speaking at a recent conference, Dimon stated, "I would say the worst outcome is stagflation—recession, higher inflation. And by the way, I wouldn't take it off the table,” as reported by Business Insider.

As the US navigates these economic challenges, the interplay between trade policies, inflation, and consumer sentiment will be critical in shaping the country's economic trajectory in the coming months.