U.S. GDP Slips into the Red as Tariff Fears Bite

The U.S. economy shrank 0.3% in the first quarter of 2025, marking its first quarterly contraction since early 2022 and igniting fresh concerns about recession as the Trump administration embarks on a renewed tariff push. 

The unexpected downturn came as businesses and consumers hurriedly accelerated imports by a staggering 41.3% to get in front of the tariffs announced in April, with goods alone surging 50.9%. 

Because imports subtract from GDP, they stripped more than five percentage points off the headline figure, partially masking underlying resilience in areas like consumer spending, which rose 1.8%, and private domestic investment, which soared 21.9% led by a 22.5% jump in equipment outlays.

The slowdown follows a 2.4% expansion in Q4 2024 and disappointed economists who had expected a 0.4% gain. While exports edged up 1.8%, the lopsided trade balance and slowing consumption (it’s at its weakest pace since Q2 2023) have muddied the outlook. 

Inflation, meanwhile, picked up sharply. The Fed’s preferred gauge, the PCE index, climbed 3.6%, up from 2.4% last quarter, while core PCE hit 3.5%. The chain-weighted price index rose 3.7%, surpassing expectations and suggesting worryingly persistent inflationary pressure.

What Does This Mean for Me?

The joint challenges of weaker growth and hotter inflation leave the Federal Reserve in a bind ahead of its June meeting. 

Despite speculation about rate cuts, the inflation data may dash those hopes. With policy uncertainty rising and consumer momentum fading, the GDP miss increases pressure on the administration’s trade strategy while giving markets plenty to think about in the days ahead.