In 2025, the US economy found itself in a challenging position following changes in tariff policy. Despite the removal of some of the toughest tariffs, the American economy is not picking up momentum quickly. Economists at Morgan Stanley believe that even with some easing, current tariffs still restrain growth and provoke inflation. That is why the Federal Reserve is unlikely to lower rates before at least March 2026.

Current tariffs remain at a level significantly higher than in previous years. The average rate dropped from a record 26% to 13%, but compared to the beginning of the year, when it was only about 2%, this progress is less impressive. The removal of some tariffs turned out to be only a temporary measure for 90 days, which means that uncertainty for businesses and investors persists. Essentially, all market participants are waiting for new decisions, which does not help with confidence or long-term planning.

How tariffs slow growth and sustain inflation

Economists point out that even a slight reduction in tariffs cannot quickly turn the economy towards rapid growth. The effects accumulated over previous years are already built into prices and company expenses. In addition, lowering tariffs has not yet addressed fundamental problems of domestic demand.

Against this backdrop, Morgan Stanley analysts highlight the main negative consequences of the current policy:

• For businesses, costs for imports and logistics have risen, reducing their profit margins
• For consumers, many imported goods have become more expensive, meaning purchasing power has fallen
• Persistent high inflation (with a forecast of 3.0–3.5% by the end of the year) makes life difficult for both companies and ordinary Americans
• The temporary nature of the relief increases nervousness among market participants and does not allow for long-term strategies

All these factors together not only prevent faster growth, but also create a dangerous “trap” for the economy—high prices and low business activity.

Fed monetary policy prospects

The question of whether the Federal Reserve will lower rates worries many investors and business owners. Morgan Stanley forecasts that the Fed will not change the rate at least until March 2026. The main reason is that inflation remains well above the 2% target, while employment is already close to its maximum levels. From the regulator’s point of view, easing policy now would only increase inflationary risks.

Fed reports also show that even if GDP growth slowed to 1.6% in the second quarter and demand is weakening, it is too early to lower rates until inflation returns to the target. The market expectation is that current conditions will remain in place until the spring of 2026, and further decisions will depend on macroeconomic indicators.