As we approach the mid-point of 2025, we thought it helpful to assess what has changed in terms of expectations and how these changes impact investment markets. Certainly, the last 6 months have been loaded with change. The globalist trade arrangements of the previous 50+ years have been upended along with U.S. foreign relations. The attached article from Capital Group does a good job comparing the economic impact of these changes on forward-looking economic forecasts. In general, the realignment of U.S. relationships has caused economic growth to be forecast at about one-half percentage point lower than the October 2024 forecasts. Expectations for global growth have been reduced by similar amounts.

Inflation readings have posted several months of good reading below expectations. It may be too soon to measure the impact tariffs will have on overall prices but so far, the reduction in demand has outweighed tariff-related price increases. The next 90 days will be critical to determine both the magnitude of tariff levels and the overall price changes. The attached article lays out four scenarios that are all plausible. While no one can forecast the outcome with any high degree of certainty the Trump Administrations tendencies lean toward “trade deals”. The softening of his position over the last several weeks suggests he does not want a trade war nor the consequences that would come with it. All of this makes the Federal Reserve’s job of steering interest rates more complicated. A wait and see approach over the next 90 days seems most likely.

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