Tariffs may drag US growth to near zero, several Fed rate cuts likely: Citi

The US economy could slow significantly—potentially to zero growth—if the recently imposed tariffs remain in place, warns Robert Sockin, Global Economist at Citi. Citing the rising economic risk posed by President Trump’s trade policy, Sockin said the base case still avoids a recession, but the odds are quickly shifting.“If you thought the US economy was going to grow near 2% this year or a bit above, you have to be marking that down to somewhere to 1% or below, and maybe even getting down to zero,” he said in an interview with CNBC-TV18. “That is why I think that the recession risk is high.”

Sockin estimates that the total impact of the tariffs could shave off up to two percentage points from US GDP, especially if further sector-specific levies—such as on pharmaceuticals and semiconductors—are implemented. While some market participants are hoping for a rollback if conditions worsen, Sockin noted that so far, the Trump administration has shown a “much higher threshold for pain” than expected.

With stagflationary pressures rising—higher inflation coupled with weaker growth—Citi expects the Federal Reserve to lean toward supporting the economy. Multiple rate cuts are likely over the coming quarters.Read Here | Will markets recover anytime soon? What Arvind Sanger and Matt Orton think

“We think that they [the Fed] are going to ultimately put more weight on the growth side and cut rates in this environment,” Sockin said. As a result, Citi sees the US 10-year Treasury yield settling “somewhere in the high 3% range,” though that outlook remains fluid.Globally, Citi now sees 2025 growth dipping below 2%, well below the pre-tariff estimate of 2.7–2.8% and near historical recession thresholds. Emerging markets like India, which had been among Citi’s top growth forecasts, are also expected to face headwinds, though they remain relatively better placed. “India overall is probably relatively well-positioned, but not without challenges,” Sockin added.

Steven Englander, Managing Director and Global Head of G10 FX Research and North American Macro Strategy at Standard Chartered Bank, echoed concerns about the economic impact of the tariffs but said a severe recession is unlikely. “A recession is a big word… it’s not going to be a 2020 or 2008-type recession,” he said, suggesting any downturn would be relatively mild unless tariffs begin disrupting critical supply chains.

On interest rates, Englander noted that markets have already begun pricing in rate cuts, with the Fed facing increasing pressure to act. He expects bond yields to rise again after the initial panic subsides, stating, “Once we get past this episode of deep fear, the risk is much more that bond yields start going up than stay at these levels.”

Englander also projects a recovery in the US dollar in the second half of the year, with the Dollar Index potentially rising to 105–106, supported by fiscal stimulus talks and easing concerns over tariffs.

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