US Economy Reclaims Momentum

“The U.S. economy has remained resilient despite significant economic policy uncertainty through the first half of 2025,” one economist said.

People shop at a store in Elkridge, Md., on July 11, 2025. Madalina Kilroy/The Epoch Times

The U.S. economy and the stock market have regained momentum following the uncertainty that prevailed in the aftermath of President Donald Trump’s global tariff plans.

After a 0.5 percent contraction in the first quarter, driven by a surge in imports and a drop in government spending, the U.S. economy is expected to rebound in the second quarter. The Atlanta Federal Reserve’s GDPNow Model estimates a 2.4 percent growth rate for the April—June period.

Looking further ahead, the New York Fed Staff Nowcast expects the third-quarter growth rate to come in at about 2.5 percent.

Initial Uncertainty

In early April, shortly after Trump revealed a chart outlining reciprocal tariff rates with U.S. trading partners, financial markets plummeted as economists sounded alarm bells about slower growth, higher prices, and a rising unemployment rate.

JPMorgan Chase economists had forecast 60 percent odds of a recession. TD Economics experts warned that inflation could exceed 4 percent. Yale’s Budget Lab expected that the unemployment rate would rise by 0.5 percentage points by the year’s end.

The University of Michigan’s Consumer Sentiment Index dropped to a three-year low, reflecting fears that the president’s tariff strategy would weigh on growth prospects, harm the job market, and reignite inflation pressures.

Entrepreneurs shared this consternation as the National Federation of Independent Business’s Small Business Optimism Index fell below the 51-year average in April.

These dire prognostications seeped into the New York Stock Exchange, with the leading benchmark averages decreasing and turning negative on the year. The Russell 2000—an index that tracks 2,000 small-cap companies—slipped into a bear market in April, down by 20 percent from its 52-week high.

Recession Fears Subside

The updated estimates have prompted many economists to revise their recession forecasts downward.

Goldman Sachs now estimates the chance of a U.S. recession within the next 12 months at 35 percent, down from its previous prediction of 45 percent.

“The U.S. economy has remained resilient despite significant economic policy uncertainty through the first half of 2025,” Josh Hirt, senior economist at Vanguard, said in a July 16 note.

To date, tariff-driven inflation pressures have been limited.

Consumer prices rose by 0.3 percent in June, in line with market expectations. Core inflation, which strips out volatile energy and food prices, jumped at a smaller-than-expected rate of 0.2 percent.

The producer price index, a measure of pipeline inflation, remained flat in June. Import prices ticked up by 0.1 percent from a 0.4 percent decline in May.

Various pockets of tariff-sensitive indexes and items have sent mixed signals about the administration’s levies. More clarity could appear in the July figures. For now, the numbers highlight that inflation is in check.

A man looks out the window at a coffee shop in Washington on July 1, 2025. Madalina Kilroy/The Epoch Times

In addition, the inflation outlook—for both consumers and market watchers—has stabilized to pre-tariff levels.

The University of Michigan’s one-year inflation outlook decreased to 4.4 percent this month, following a 23-year high of 6.5 percent in May. Likewise, the New York Fed’s Survey of Consumer Expectations for June found that year-ahead inflation expectations eased to 3 percent from 3.6 percent in April.

A more optimistic outlook among consumers has led them to open their wallets again.

In June, retail sales surged at a better-than-expected pace of 0.6 percent, up from the 0.9 percent decline in May.

“Consumers are flexing their spending muscle again. After May’s slump, a 0.6 [percent] jump in retail sales shows that the American shopper is alive and well,” Gina Bolvin, president of Bolvin Wealth Management Group, said in a note emailed to The Epoch Times.

Minutes from the June Federal Open Market Committee meeting highlight the Fed staff’s belief that the inflation situation has improved since May.

“The staff’s inflation projection was lower than the one prepared for the May meeting,” the meeting summary stated.

Employment conditions have remained solid, even at the height of economic uncertainty.

For the first time since February, the unemployment rate fell to 4.1 percent in June, down from 4.2 percent in May.

U.S. stocks have responded favorably to both the economic data and the White House’s softening its trade stance and reaching new trade agreements.

Over the past three months, the blue-chip Dow Jones Industrial Average surged by more than 13 percent. The tech-heavy Nasdaq Composite Index rallied by 28 percent, while the broader S&P 500 advanced by close to 20 percent.

“We were coming from a place of abysmal terror and fear of a recession as it became clear that Trump was taking an aggressive stance on trade,” Giuseppe Sette, co-founder and president at Reflexivity, said in a note emailed to The Epoch Times. “That shifted to a more relaxed outlook once it appeared that actual deals were starting to come through.”

Since April, the United States has established deals with the UK, Vietnam, Indonesia, the Philippines, and Japan. The administration also put together a tentative agreement with China. Additionally, many of the letters that the president sent to his counterparts worldwide contain tariff rates lower than what he outlined in the spring.

While negotiating new agreements with major and minor trading partners, the United States is also collecting a record amount of tariff income.

So far, in the current fiscal year, the federal government has garnered $129 billion in tariff revenues, according to the latest Daily Treasury Statement.

Treasury Secretary Scott Bessent forecasts the United States could generate as much as $300 billion by the end of the year.

Lagging Feeling

Federal Reserve Chair Jerome Powell, speaking to lawmakers on Capitol Hill in June, said that the effects of higher tariffs may not be apparent until the July data are released.

“The effects of tariffs will depend, among other things, on their ultimate level,” Powell said in prepared testimony. “Expectations of that level, and thus of the related economic effects, reached a peak in April and have since declined. Even so, increases in tariffs this year are likely to push up prices and weigh on economic activity.”

Tariff policy operates with a lag, meaning that potential adverse effects could take months—or a year—to appear.

Before the president unveiled the contours of his tariff agenda, companies accelerated their imports to avoid additional costs from higher import duties. This allowed businesses to stock up their inventories, prepare for the future, and wait for more certainty in trade policy. At the same time, according to Hirt, the front-running effect may have prolonged possible side effects.

Federal Reserve Chairman Jerome Powell testifies before the Senate Committee on Banking, Housing, and Urban Affairs in Washington on Feb. 11, 2025. Madalina Vasiliu/The Epoch Times

“It is worth noting that the front-running effect is not a free lunch—it has muted the near-term impact of increased tariffs but will modestly prolong their effects into 2026,” he said.

Tariffs continue to be on the top of consumers’ minds, according to Stephanie Guichard, senior economist of global indicators at The Conference Board.

Last month, the group’s Consumer Confidence Index retreated, erasing nearly half of May’s rebound.

“Consumers’ write-in responses revealed little change since May in the top issues impacting their views of the economy,” Guichard said. “Tariffs remained on top of consumers’ minds and were frequently associated with concerns about their negative impacts on the economy and prices.”

What occurs in the coming months will depend on what businesses—at home and abroad—plan to do.

Price-sensitive consumers, who may curtail their spending, might force companies to absorb higher tariff-related costs. Well-stocked inventories may allow businesses to postpone price hikes. Private firms may pass a modest portion of the levies onto their customers, as observed in several Federal Reserve reports, including the latest Beige Book. Foreign exports could also eat some of the tariffs in the form of lower prices and profits.

“Tariff pass-through may have been delayed for several reasons including uncertainty about tariff duration and final levels, stockpiled inventory, supply-chain adjustments, long-term contracts, and even competitive pressures due to price-sensitive demand,” Scott Anderson, chief U.S. economist, said in a July 11 note.

For now, according to the Bank of America Institute, consumer spending patterns signal that Americans are cautiously optimistic.

Credit and debit card spending per household rose by 0.2 percent year over year in June, compared with the 0.8 percent year-over-year jump in May. Additionally, retail expenditures increased by 0.7 percent, while services spending declined by 0.1 percent.

“It appears consumers are pulling back on some areas of discretionary services spending, though this cooling does not currently appear broad-based,” the bank said in the July 10 report.

With the back-to-school and holiday shopping seasons, the second half of 2025 will be pivotal in determining the effects—positive or negative—of Trump’s tariffs.