How tariffs will impact the US economy

As tariffs go from idea to reality, what might be the actual implications for The US economy? I'm Alison Nathan, and this is Goldman Sachs Exchanges. Today, I'm joined by David Maracle, our chief US economist in Goldman Sachs Research. He joins me over the phone from Doha. David, welcome back to Exchanges. Thanks,

Alison. Great to be back.

So, David, there are so many tariff headlines coming at us. Help us cut through all of this. Where does the picture stand now, and how has that changed from your prior expectations?

Sure. The tariffs that are now in effect raised The US's effective tariff rate by somewhere around three percentage points. Between election day and inauguration day, that's more or less what we were expecting. So the tariffs that have already taken effect are not necessarily larger, but we have raised our expectations for what will eventually come into place. Some of that was just seeing that they were willing to go ahead initially with these tariffs on Canada and Mexico and pulling them back. Some of it is commentary from president Trump and others in the administration that has made us thin

So let's talk about the macro implications. Is inflation, which has been so much in focus, becoming a bigger concern off the back of all of this? If

there were new tariffs this year, we would expect inflation to fall, if you look at the Fed's preferred core PCE measure, from 2.65 at the moment to something like 2.1% by the end of the year. Now under our prior more moderate tariff assumptions, we thought maybe instead of falling to the low twos, inflation would stay at something more like the mid twos for the duration of the year. Our new larger tariff assumptions have a meaningful impact. They imply that instead we'll see a bit of a pickup and we'll wind up just short of 3%. In principle, even with the larger magnitude of the tariff increa

And what about the risk that we see a hit to growth? I'm hearing the word stagflation a lot these days. How concerned are you that we could be in a stagflationary environment?

So we have revised our inflation forecast up for the year and our growth forecast down for the year. So directionally, that would be the effect of tariffs, higher inflation, lower growth. I think using that word, at least in a US context where most people have in mind when they hear stagflation, What we experienced back in the nineteen seventies, a very weak labor market and very high, eventually, double digit inflation. Comparing what we're expecting even larger tariffs to do to that period seems to me inappropriate. So I think the the terminology is probably a little bit misleading, but the

what are we expecting for growth at this point then? So