In 2025, the American economy faced significant challenges amid changes in tariff policy. Despite the partial removal of the harshest duties, economic growth remains weak and fails to reach the desired pace. According to analysts at Morgan Stanley, even with tariff easing, existing restrictions continue to hold back development and provoke rising inflation. Therefore, the Federal Reserve (Fed) is unlikely to cut interest rates before at least March 2026.

Tariffs remain significantly higher than in previous years. The average rate dropped from a record 26% to 13%, but compared to about 2% at the beginning of the year, this progress seems minimal. Additionally, the removal of some tariffs is temporary — only 90 days — which maintains an atmosphere of uncertainty for businesses and investors. All market participants are waiting for new decisions, which hinders confidence and long-term planning.

Impact of tariffs on economic growth and inflation

Economists note that even moderate tariff reductions cannot immediately stimulate rapid economic growth. Previously introduced tariff barriers are already reflected in prices and company expenses. Moreover, lowering duties has not addressed the fundamental problem of weak domestic demand, which remains insufficient.

The main negative consequences of the current tariff policy highlighted by Morgan Stanley include:

• increased import and logistics costs for businesses, reducing their profitability;
• higher prices for imported goods for consumers, decreasing purchasing power;
• persistent high inflation — forecasted at 3.0–3.5% by the end of the year — complicating life for companies and the population;
• temporary nature of tariff easing, creating additional uncertainty and hindering long-term planning.

Together, these factors not only slow economic growth but also create a so-called economic «trap»: high prices combined with low business activity.

Prospects for Fed monetary policy

Many investors and businesspeople are wondering when the Federal Reserve will be able to lower interest rates. According to Morgan Stanley’s forecasts, the rate will remain at the current level at least until March 2026. The main reason for this is persistent inflation significantly above the 2% target, despite the labor market nearing full employment.

The Fed notes that even with GDP growth slowing to 1.6% in the second quarter and weakening demand, it is premature to cut rates until inflation stabilizes at the target level. Market participants expect current conditions to persist until spring 2026, after which further decisions will be based on macroeconomic data.