The 'biggest risk' to the US economy for the rest of 2025

00:00 Speaker A

We’ll just finish with a kind of what you see as the the biggest downside risks to the economic outlook right now, whether that’s something that Powell pointed to or something else that you and your team have been exploring.

00:13 Michael Gapen

Well, I I think that there’s a I think there’s a story here of let’s call it the next few quarters and then after that. I do think maybe through the first quarter of the year, the the biggest risk to the economy and the labor market is that we’re we’re only about three months in to the time under which corporates are passing through tariffs to the consumer. Uh we think that they’ll be able to pass enough through such that they don’t need to cut labor, but I think the risk is maybe maybe they can’t pass through all these costs to the to the consumer. If that’s the case, I mean the tariff bill is a big bill. If you annualize the 60 days, the past 60 days worth of tariff collections, it’s about $355 billion. So somebody has to pay that. The risk is corporates cannot pass it on, therefore they they need to preserve margins and earnings by reducing labor. And I think between now and maybe the first quarter, that’s the primary risk. The further you look out though, if we get past that period, then the fiscal bill starts to kick in, monetary policy easing may start to have some effect and then I think the balance of risks can shift perhaps towards the upside in 2026.

01:54 Speaker A

All right, we’ll leave it there. Michael Gapen, chief US economist at Morgan Stanley. Always appreciate the time.

02:01 Michael Gapen

Thank you.