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Moody's Chief Economist: Trump's tariffs may lead to stagnation in the US economy, the Federal Reserve may raise interest rates

Moody's Chief Economist: Trump's tariffs may lead to stagnation in the US economy, the Federal Reserve may raise interest rates

Bitget2025/03/05 01:32

U.S. President Trump has initiated actions to impose tariffs on Canada and Mexico, Moody's Chief Economist Mark Zandi believes that the U.S. economy may fall into stagflation. Recent data reflects that American consumers and businesses are already worried about economic prospects and reducing spending, these effects will lead to a significant slowdown in the economy, while the effect of tariffs leads to high inflation, therefore the U.S. economy may fall into stagflation. If true, it would be the first time in 50 years for America to experience stagflation. The GDPNow model from Atlanta Federal Reserve shows that US economy might shrink by 2.8% in Q1. If true, this would be its first contraction since Q1 2022. In face of stagflation, Federal Reserve might raise interest rates just like former Fed Chairman Volcker did in early 1980s when he raised interest rates significantly sacrificing economic growth to curb inflation.

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