(Reuters) – Morgan Stanley lowered its 2025 economic growth forecast for the United States on Friday, citing greater impact from tariffs and a still-tight labor market resulting in higher inflation.
“Earlier and broader tariffs should translate into softer growth this year, whereas we previously assumed it would weigh on growth mainly in 2026,” said Morgan Stanley economists led by Michael T Gapen.
The Wall Street brokerage lowered its Q4/Q4 2025 growth forecast to 1.5% from 1.9% earlier. It also lowered its 2026 growth forecast to 1.2% from 1.3%.
President Trump’s tariff policy is expected to drive up inflation and will increase pressure on the U.S. central bank as it looks to control persistent inflationary pressures, the note said.
Morgan Stanley retained its forecast of a single 25-basis-point interest rate cut by the U.S. Federal Reserve this year in June.
“We think markets will ultimately get these cuts, but much later than they expect,” Gapen said referring to current market predictions of nearly three rate cuts this year.
Meanwhile, Goldman Sachs also downgraded its 2025 Q4/Q4 GDP growth forecast to 1.7%, from 2.2% previously, and raised its 12-month recession probability to 20% from 15%.
(Reporting by Kanchana Chakravarty in Bengaluru; Editing by Alan Barona)
