Trump’s latest tariff pause has Wall Street reeling back its recession calls.
Discussion of an economic downturn later in 2025 had surged as economists argued Trump’s widespread tariffs would boost inflation and slow economic growth. Now, with the bulk of tariffs on goods from China paused for 90 days — and optimism around further trade deals building — economists argue that economic growth will still slow later this year, but the odds of a recession have diminished.
“The administration’s recent dialing down of some of the more draconian tariffs placed on China should reduce the risk that the US economy slips into recession this year,” wrote JPMorgan chief US economist Michael Feroli, who had been the first Wall Street economist to call for a recession after Trump’s large tariff increase.
“We believe recession risks are still elevated, but now below 50%.”
Feroli’s logic is simple: Tariffs are essentially a tax. With the latest tariff cuts, the estimated effective US tariff rate has fallen from roughly 24% to 14%. This creates a $300 billion “tax cut” for American consumers that likely would’ve been swallowing the brunt of the price increases caused by tariffs. Americans paying higher prices and eventually being unable to spend as much was a key part of why economists have been worried about tariffs leading to an economic slowdown.
Read more: The latest news and updates on Trump’s tariffs
“The rolling back of this tax should provide some relief to consumer spending, and in our modeling is enough to tip the second-half growth outlook from one of modest contraction to one of modest growth,” Feroli wrote.
Feroli isn’t alone in believing recession odds are diminishing as the US scales back its tariff escalation. Both Yardeni Research and Goldman Sachs have also lowered their recession odds in reaction to the US pausing the bulk of its tariffs on Chinese goods.
Goldman Sachs’ economics team moved its recession probability for the next 12 months down to 35% from a prior forecast of 45% while boosting its GDP forecast to 1% growth for the year, higher than a prior forecast of 0.5%.
Read more: What is a recession, and how does it impact you?
Yardeni, meanwhile, now sees 2025 GDP in a range of 1.5% to 2.5%, up from a prior projection in the 0.5% to 1.5% range. Barclays’ economics team, which had previously called for a recession, removed its call for an economic downturn in a note to clients on Tuesday.
“We think these lower tariff rates on China will be considerably less disruptive for domestic activity, labor markets, and less inflationary, than prior rates,” Barclays chief US economist Marc Giannoni wrote.
Giannoni pointed to how the tariffs on Chinese goods had already led to slower inbound cargo shipments into the US. Economists had cited this as one potential catalyst for the start of a recession, as slower shipments would eventually lead to lower inventory and higher prices for goods. That cycle would lead to consumers buying fewer goods and, eventually, companies being forced to cut employees as their sales slow. The increased likelihood of an eventual lower tariff rate on Chinese goods mitigates this risk.
To be sure, economic forecasts are just that — forecasts. And while the likelihood of a downturn has shifted, risks remain for a US economy that already features a cooling labor market and is expected to see rising inflation later this year.
Still, the more sanguine economic forecasts have provided a boost for stocks.
In the initial reaction to Trump’s “Liberation Day” tariffs on April 2, skyrocketing odds of a recession spooked more than 10 Wall Street strategists to slash their year-end target for the S&P 500 (^GSPC).
Read more: How to protect your money during turmoil, stock market volatility
Now the same trend has been happening in reverse. Yardeni Research President Ed Yardeni pointed out in a Monday night to clients that the odds of a recession on popular online betting platform Polymarket have tumbled from 51% last Friday to less than 40% after Trump’s China tariff delay.
In that same note to clients, Yardeni boosted his year-end target for the S&P 500 from 6,000 to 6,500. The Goldman Sachs equity strategy team made a similar move, now forecasting the benchmark index to end the year at 6,100, up from a prior call for 5,900.
“We raise our S&P 500 return and earnings forecasts to incorporate lower tariff rates, better economic growth, and less recession risk than we previously expected,” Goldman Sachs chief US equity strategist David Kostin wrote in a note to clients.
Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.
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