The China-U.S. trade truce may alleviate U.S. inflation pressure, while the risk of economic recession simultaneously cools
With the United States and China reaching a phased trade agreement, economists generally expect that inflationary pressures in the United States will ease, and the risk of economic recession will also decrease in the short term. The latest survey shows that the peak forecast for the Personal Consumption Expenditures (PCE) price index by the end of 2025 has been revised down to 3.1%, and the probability of recession has dropped from 45% to 40%. Although the expected growth rate of consumer spending has been revised up to 1.5%, the outlook for corporate investment remains pessimistic, with the expected growth rate of private investment revised down from -3% to -5.2%
According to the latest survey, as the United States and China reach a phased trade agreement, economists generally expect that inflationary pressures in the U.S. will ease, and the risk of economic recession will also decrease in the short term. Between May 16 and 21, 86 surveyed economists lowered their peak forecast for the Personal Consumption Expenditures (PCE, the Federal Reserve's core inflation indicator) price index at the end of 2025 from 3.2% in April to 3.1%, while also lowering the expectations for the Consumer Price Index (CPI) at the beginning of 2026.
Figure 1
Although the expected probability of recession has decreased from 45% last month to 40%, it remains significantly higher than the 30% forecast in March. The median expectation for U.S. GDP growth in 2025 among respondents is only 1.3%, further down from previous forecasts. Analysts believe that the Trump administration's announcement this month to significantly reduce tariffs on Chinese goods sends a positive signal for improving bilateral trade relations, but the current tariff levels are still significantly higher than those before Trump took office in 2017.
Figure 2
The impact of tariffs shows dual characteristics: on one hand, the surge in imports due to companies rushing to avoid tariffs (which saw the largest increase in import volume in nearly five years at the beginning of this year) led to the first negative GDP growth since 2022; on the other hand, economists predict that the scale of imports will significantly contract this quarter, which may provide some support to GDP.
Figure 3
Consumer spending shows resilience but the growth rate is slowing: the expected growth rate of consumer spending in the second quarter has been raised from 1% in April to 1.5%, but it is expected to gradually slow down in the second half of the year. The outlook for business investment appears pessimistic, with the expected growth rate of private investment this quarter being significantly lowered from -3% to -5.2%, and expectations for the coming quarters continue to weaken.
Olu Omodunbi, Chief Economist at Huntington Private Bank, pointed out: "While the U.S.-China trade agreement is a positive development, policy uncertainty remains. We expect consumption and investment growth in 2025 to slow compared to 2024." This cautious expectation is corroborated by persistently low consumer confidence data—the University of Michigan Consumer Confidence Index remains at historically low levels.
It is worth noting that although inflationary pressures have eased, economists warn that the drag effect of tariffs on economic growth continues. The team of economists led by Bill Adams at Citigroup believes: "Although the tariff increases did not trigger the economic recession feared last month, they have indeed led to a slowdown in economic growth This judgment resonates with the Federal Reserve's policy challenge of seeking a balance between inflation and growth
