(Kitco News) – Despite Thursday morning’s Q1 GDP revisions showing contraction and jobless claims data worsening, the court ruling invalidating Trump’s tariff authority means the Fed is now even less likely to cut rates this year, according to Bill Adams, Chief Economist for Comerica Bank.
“The administration is appealing the decision to invalidate the tariffs and is likely working on alternative proposals to replace the invalidated one in case they lose,” Adams said in a comment to Kitco News. “In the meantime, imports are likely to jump again as businesses hope that the decision lowers their import tax bill.”
He added that the surprise court decision “reinforces the depth of uncertainty” that hangs over the economy in 2025, which is causing many businesses to drag out investment and hiring decisions while they await clarity.
“The second estimate of GDP for the first quarter demonstrates just how uncertainty is weighing on economic activity,” Adams said. “While the numbers shifted slightly, the broad narrative for GDP is the same: Consumers and businesses redirected spending towards imported goods that were expected to rise in price because of tariffs and away from domestically produced goods and services, weighing on production. The contraction in real GDP was mirrored by declines in the other major economy-wide aggregates.”
Turning to this morning’s jobless claims numbers, he said that while layoffs remain fairly low, laid-off workers are staying unemployed longer than they were a year or two ago. “That is showing up in rising continued jobless claims, which reached the highest since late 2021 in mid-May,” he noted.
Looking ahead, Comerica believes that the ongoing policy uncertainty will keep the economy stuck in slow gear for the balance of 2025.
“The second quarter will likely see imports holding near the first quarter’s record highs, along with cautious business spending on other categories of goods and services,” Adams said. “There are signs that consumers have been a little more cautious toward discretionary spending recently, too. Real GDP will likely either contract again in the second quarter or hold in low gear, but the economy is unlikely to slip into recession. Growth should pick up in the second half of the year as the economic narrative refocuses away from tariff hikes and toward tax cuts.”
As for the FOMC minutes from the May meeting released yesterday, Adams said they underlined that the Fed is in no hurry to cut interest rates in response to the tariffs. “That attitude looks well justified by today’s uncertainty about where the tariffs will settle out.”
The Fed looks very likely to hold interest rates steady for at least the next couple of decisions,” he concluded. “Comerica forecasts for the Fed to hold interest rates unchanged through year-end 2025.”
