Following a strong finish to 2024, the first quarter of 2025 introduced a new wave of uncertainty. Markets have been rattled by renewed tariff threats, reigniting concerns over global trade and economic stability. While volatility has increased in response, we continue to believe these threats are primarily a negotiation tactic—a strategy we've seen used in past administrations. As trade discussions evolve, we expect volatility to subside and more favorable agreements to emerge.
Tariffs and Recession Concerns
The prospect of sweeping tariffs has elevated the probability of a near-term recession, mostly due to uncertainty’s dampening effect on business investment and consumer confidence. However, we believe that if a recession does occur, it will likely be shallow and short-lived. Once there is greater clarity around trade policies, we expect both business activity and consumer spending to recover.
Inflation remains on a downward trajectory, falling significantly from the 9.1% peak in June 2022 and now holding around 3%. While tariffs may temporarily push inflation higher, we believe the impact will be short-lived and contained primarily to a single year.
Inflation and Fed Policy
The Federal Reserve currently projects three to four rate cuts in 2025. Still, we are approaching this forecast with a degree of caution. The uncertainty surrounding tariffs may prompt the Fed to delay its timeline for easing, particularly if short-term economic disruptions emerge. That said, with inflation cooling and unemployment still healthy at 4.1%, we believe the environment remains favorable for rate cuts later in the year—especially if trade tensions ease.
Market Response and Rebound Outlook
Markets reacted quickly to the tariff announcements. The sharp pullback on what some have dubbed “Liberation Day” took many by surprise. Despite the initial shock, we remain optimistic that markets will begin to stabilize and rebound as we move into summer, especially if tangible progress is made on trade negotiations.
Staying the Course
Periods of volatility often tempt investors to time the market. But history shows that market timing is nearly impossible. It’s easy to get out—but getting back in at the right time is much harder. Missing just a few of the best-performing days can significantly reduce long-term returns. Staying invested, especially during uncertain times, remains one of the most consistent paths to long-term success.
Final Thoughts
While headlines may continue to stir short-term emotions, our long-term view remains constructive. Inflation is trending lower, the job market remains resilient, and economic fundamentals are still in good shape. We encourage clients to stay focused on their long-term goals and lean on the planning we’ve built together—designed to withstand market noise and support lasting success.
As always, we’re here to help you navigate through uncertainty with confidence and clarity.