Uncertainty grows as US tariffs, spending shifts, and inflation concerns weigh on economic forecasts
US Treasury Secretary Scott Bessent acknowledged signs of weakness in the US economy, stating on CNBC’s Squawk Box that the shift from public to private spending could lead to a natural adjustment.
He described the US economy as one the administration had inherited, referring to the transition from the Biden administration to US President Donald Trump, who took office on January 20.
Bessent noted that the market and economy had become reliant on government spending, suggesting a necessary “detox period” as this dependency wanes.
While the US experienced strong economic growth under Biden, late 2024 saw signs of a slowdown, with inflation remaining above the Federal Reserve’s 2 percent target.
The Trump administration has begun implementing changes, including adjustments to global trade policies and reductions in the federal workforce.
However, little economic data reflects Trump’s tenure so far. Consumer surveys indicate a decline in confidence, and the February jobs report, released after Bessent’s remarks, showed an uptick in unemployment to 4.1 percent from 4.0 percent.
The US economy added 151,000 jobs in the month, falling short of the 170,000 projected by economists, according to Dow Jones.
Tariffs have emerged as an area of immediate impact. Trump has imposed tariffs on Canada, Mexico, and China, though exemptions for Canada and Mexico have lengthened the process.
Additional tariffs are set to take effect in April. Bessent dismissed concerns that these measures would drive ongoing inflation, describing them as a “one-time price adjustment.”
He also said the administration was not receiving enough recognition for declines in oil prices and mortgage rates since Trump took office.
Meanwhile, economists surveyed by Reuters expressed concerns over the unpredictable tariff policies, which have created significant uncertainty for businesses and policymakers in Canada, Mexico, and the US.
The Trump administration has temporarily removed 25 percent tariffs on goods from Canada and Mexico for a second time in six weeks, complicating economic forecasts.
The volatility has made it difficult to predict growth, inflation, and interest rates, even as the Bank of Canada prepares to announce its next rate decision on March 12.
The shifting tariff policies have also unsettled financial markets, with the S&P 500 erasing all gains made since Trump’s November election. Some economists are running dual scenarios—one with tariffs and one without—due to the uncertainty surrounding their implementation.
According to a Reuters survey of 74 economists across North America, 70 indicated that recession risks in their respective economies had increased. The International Monetary Fund stated that sustained US tariffs would significantly affect Canada and Mexico’s economies.
Economists anticipate that the Bank of Canada will cut its overnight rate by 25 basis points on March 12. However, broader inflation concerns remain.
Nearly 70 percent of economists in a recent survey raised their 2025 inflation outlook for the US, and 85 percent said near-term inflation risks have tilted toward higher prices.
The US Federal Reserve is also facing uncertainty. While poll medians suggest the Fed will lower rates twice in 2025, reaching 3.75-4.00 percent by year-end, 45 of 101 economists foresee only one reduction or none.
For Mexico, economic prospects remain uncertain despite the latest tariff reprieve.
Analysts at Invex noted that Trump’s presidency continues to weigh on growth, while ongoing inflation risks complicate monetary policy.
If tariffs persist and inflation rises, Banxico, Mexico’s central bank, may reconsider its planned rate cuts, according to Actinver’s Ramon de la Rosa.
