The United States is facing rising inflation concerns as recent tariff policies contribute to an economic slowdown. According to the U.S. Department of Commerce, the economy contracted at an annualized rate of 0.2% in the first quarter of 2025, marking the first decline in three years.
This contraction is largely due to a surge in imports, which widened the trade deficit and shaved 4.9 percentage points off the Gross Domestic Product (GDP). Reduced government spending also played a role in the economic downturn.
Inflation remains a pressing issue. The core Personal Consumption Expenditures (PCE) price index, a key inflation measure monitored by the Federal Reserve, increased at an annualized rate of 3.4% in the first quarter. While slightly lower than the initial estimate of 3.5%, inflation pressures continue to persist.
Federal Reserve officials are expressing caution amid “exceptionally high” uncertainty about the economic outlook. Minutes from the May Federal Open Market Committee meeting highlight the need to wait for clearer signs of inflation and economic trends before adjusting policies.
Raphael Bostic, President of the Federal Reserve Bank of Atlanta, indicated a preference for only one interest-rate cut this year due to ongoing uncertainties over growth and inflation.
Consumer sentiment reflects these concerns. The Conference Board’s Expectations Index, which gauges consumers’ short-term outlook on income, business, and labor market conditions, rose to 72.8. However, it remains below 80, the threshold that typically signals a recession.
Adding to the unease, Jamie Dimon, CEO of JPMorgan Chase, warned of the potential for stagflation—a combination of stagnant economic growth and high inflation. Speaking at a recent conference, Dimon stated, “The worst outcome is stagflation—recession, higher inflation. And by the way, I wouldn’t take it off the table.”
As the U.S. navigates these economic challenges, the interplay between trade policies, inflation, and consumer confidence will be critical in shaping the country’s economic path in the months ahead.
