Trump’s policies set to cool growth and lift inflation, economists say

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Donald Trump’s sweeping tariffs and rush to downsize the federal government will slow US economic growth and accelerate inflation, leading academic economists have warned in a survey by the Financial Times.

Economists also flagged up concerns about the quality of the country’s economic statistics — vital information for investors in the world’s biggest economy — following the Trump administration’s decision to disband an influential council of advisers.

The FT-Chicago Booth poll follows two weeks of selling in US equities, triggered by Donald Trump’s tariffs on US trading partners and his administration’s efforts to sharply slim down the federal government. It also comes ahead of Wednesday’s Federal Reserve decision, in which officials will provide their economic forecasts.

“Tariffs, tax cuts, government employment and expenditure cuts, assaults on education funding, and [Fed] independence all are in play,” said Robert Barbera, economist at Johns Hopkins University. “Nothing of the sort has been in play in my 50 years of forecasting.”

Almost all respondents in the survey, which was conducted in partnership with the Clark Center at the University of Chicago’s Booth School of Business, said the uncertainty around economic policy would dent growth, as consumers and businesses pull back on spending.

The median estimate among the 49 economists surveyed was for the economy to expand 1.6 per cent in 2025, down sharply from 2.3 per cent in the December survey. Last year the US economy expanded by 2.8 per cent, the highest rate in the G7 group of leading rich economies.

There are already signs that Trump’s tariffs, including those on steel and aluminium, are rippling through the US economy. Businesses have reported declines in new orders, while consumer sentiment has slumped. Prices for both of the metals, key inputs for industry, have also risen. Canada and China have also already retaliated with their own tariffs against the US, while the EU has threatened to do so.

Economists also expect Trump’s policies to fuel higher inflation, pushing the Fed further away from its 2 per cent target. They expect the core personal consumption expenditures price index — a gauge closely watched by the Fed — to rise at an annual rate of 2.8 per cent by year-end from a December forecast of 2.5 per cent. The measure rose at a year-on-year rate of 2.6 per cent in January.

Karen Dynan, a professor at Harvard University who served under the Obama administration, said that “economists have struggled historically to find evidence that uncertainty matters for growth in the US.”

She added: “But the uncertainty is so high now that it seems likely to reduce investment. How much will depend on how long it persists.”

Some of Trump’s flagship domestic policies, including large cuts to the federal workforce led by Elon Musk’s so-called Department of Government Efficiency (Doge), have also been challenged in court. Trump has also repeatedly backtracked on tariffs, for example, he provided a major carve out to levies on Mexico and Canada just days after imposing them.

“It is not clear what policy actions are going to stick, with constant reversal, challenges in courts, reassessment,” said Sarah Zubairy, of Texas A&M University.

More than 90 per cent of respondents also said they had concerns about the quality of economic data, with just over half saying they were very worried and the rest a little worried.

That follows the Commerce Department’s decision to disband the Federal Economic Statistics Advisory Committee, a body that helped improve the quality of economic data, last month.

Commerce secretary Howard Lutnick said earlier this month that he planned to “separate” government spending from measures of GDP, a change from the international norm of including public spending in the figure.

“A politically-motivated change in the way variables are measured would be troubling,” said James Hamilton at the University of California San Diego, who said he was only mildly concerned by the changes in data collection and delivery announced so far.