Investing.com -- Barclays (LON:BARC) economist Jonathan Millar said the U.S. administration’s sweeping new tariffs, announced on “Liberation Day,” have delivered an unexpectedly strong stagflationary shock, raising risks of both higher inflation and recession later this year.
According to Barclays, new reciprocal tariff package implies a trade-weighted tariff rate of about 23%, roughly eight percentage points above Barclays’ prior assumption.
Country-specific levies range between 10% and 50%, with sectoral carveouts for energy and some essential imports. While Mexico and Canada were largely exempt, the impact on Asia is expected to be particularly pronounced.
“The administration's ‘Liberation Day’ announcement imposed unexpectedly large tariffs on most trade partners, injecting a bigger-than-expected stagflationary impetus,” Millar wrote in a note.
Equity markets ended the week lower as investors absorbed the scope of the tariff announcement and its potential consequences for global trade and domestic economic conditions.
GDP down, unemployment up
Barclays now expects U.S. GDP to contract in the second half of 2025 and forecasts the unemployment rate will rise to 4.7% by early 2026.
At the same time, the bank revised up its inflation outlook, projecting core PCE inflation at 3.7% year-over-year in Q4 2025 and 2.7% in Q4 2026.
“Even with core inflation running higher, we expect the Fed to deliver two 25bp cuts each year, despite White House pressure,” Millar wrote, referring to calls from U.S. president Donald Trump for lower interest rates.
Despite the worsening macro backdrop, Millar noted that March labor market data remained solid. He added that while March payrolls showed continued resilience, “anxious markets are pricing in rate cuts” as cost-push inflation and growth risks come into view.
“Job gains rebounded sharply,” he said, adding that prior revisions suggest a likely payback from weather-related distortions earlier in the year. On the other hand, federal job cuts have had only modest effects so far, Miller added.