IMF downgrades US growth forecast amid Trump's trade war

The International Monetary Fund (IMF) significantly downgraded the growth forecast for the United States to 1.8% from a previous estimate of 2.7% due to escalating uncertainties surrounding President Donald Trump’s trade policies. As of April 2025, the ongoing trade war, which includes tariffs as high as 145% on many Chinese goods, has introduced considerable volatility within the markets and raised inflation expectations to an anticipated 3% this year, exceeding the Federal Reserve's target of 2%. The impact of these tariffs is expected to trigger a substantial slowdown not just in the US economy, but also in major economies worldwide, including China, India, and several European nations. The downgrading of economic growth reflects a broader trend among advanced economies, as policymakers struggle to navigate the murky waters of global trade relationships. There is an increasing likelihood of trade-related repercussions, which could further diminish consumer confidence and negatively affect corporate profits. The uncertainties have already led to significant declines in stock markets and prompted a flight to safety by retirement savers, leading to outflows from riskier equity markets towards more stable investments. Furthermore, the IMF has raised the probability of the US entering a recession within the year to 40%, compared to previous estimates that had assessed the risk at approximately 25%. With the President's recent statements regarding the Federal Reserve Chair Jerome Powell indicating a willingness to interfere in monetary policy, economic analysts are expressing concern over the independence of the Fed and its potential implications for economic stability. As Trump continues to exert pressure on trade and monetary policy, it remains uncertain how this approach will influence inflation rates and growth prospects for the rest of the year. Ultimately, the IMF regards the combination of tariffs, policy uncertainties, and their knock-on effects as a significant risk factor that could deter economic recovery and growth. The IMF's remarks highlight a critical juncture facing the US economy, reflecting a need for more coherent and predictable policies that can support sustainable growth. Policymakers, businesses, and consumers will need to navigate this volatile environment carefully as the repercussions of these trade negotiations unfold.