After a trade-induced slowdown bruised the economy in early 2025 and with another dip forecast for this coming fall, Wells Fargo says the Federal Reserve is poised to cut rates aggressively amid deteriorating labor market conditions.
In an outlook shared this week, the investment bank’s economic team updated its U.S. outlook and reaffirmed that while a full-blown recession may still be avoided, a period of painful stagnation and elevated inflation lies directly ahead.
‘Trade War Impact Is Just Getting Started’
The U.S. economy shrank 0.3% in the first quarter, largely due to a massive swing in trade flows. Net exports subtracted 4.8 percentage points from GDP, the largest drag on trade in over five decades.
Import volumes surged 41.3% on an annualized basis as businesses rushed to stockpile goods before tariffs kicked in on April 2. That front-loading of demand distorted the early-year data.
Yet, “the economy is not out of the woods yet,” the report noted.
According to Wells Fargo, after a growth rebound in the second quarter, the economy is expected to contract 1.5% in the third quarter.
“We anticipate some stomach-turning …