Latest economic data defies Federal and economist expectations despite Trump tariffs and uncertainty

Uncertainty is still high, leading to continued caution by feds and economists who expect to see the worse to come in the coming months

Economist and Federal Reserve forecasting on macroeconomic metrics have been defied in every major category despite Trump’s tariffs and the uncertainty they’ve rightfully caused.

This doesn’t imply there won’t be consequences in the near future. This also doesn’t mean we didn’t take a hit in certain areas that we otherwise may not have. But it is extremely relevant that expert predictions on the short term impacts of tariffs have missed their mark.

The feds are still convinced we will see worsening inflation soon enough, so interest rates are going to stay where they are.

This could be another “perception vs data” scenario considering market confidence and sentiments dropped sharply, even though the data doesn’t reflect these sentiments.

1. Inflation

April 2025 CPI: The Consumer Price Index (CPI) rose by 0.2% month-over-month and 2.3% year-over-year, marking the lowest annual increase since February 2021. Economists had forecasted a 0.3% monthly rise and a 2.4% annual rate. The moderation was largely due to a significant drop in gasoline prices. However, core inflation (excluding food and energy) increased by 2.8%, aligning with expectations.

2. Labor Market / Employment

April 2025 Jobs Report: The U.S. economy added 177,000 jobs in April, surpassing the expected 138,000. The unemployment rate remained steady at 4.2%. Average hourly earnings rose by 3.8% year-over-year, indicating sustained wage growth, but real wages have started to tick upward again as inflation has cooled.

3. Consumer Spending

April 2025 Trends: Despite a decline in consumer confidence, spending remained resilient. Notably, U.S. shoppers shifted their purchases from Chinese e-commerce platforms to domestic retailers, with department stores like Nordstrom Rack experiencing a 21% increase in spending. This shift was influenced by new tariffs on Chinese goods.

4. GDP Growth

Q1 2025 GDP: Real GDP contracted at an annual rate of 0.3% in the first quarter, primarily due to a surge in imports ahead of anticipated tariffs. This contraction was less severe than some forecasts, which predicted a decline of up to 2.7%.

5. Trade & Manufacturing Inventory

Import Surge: Imports increased at a 41.3% annual rate in Q1 2025, the largest rise since Q3 2020. This surge, driven by businesses stockpiling ahead of tariffs, subtracted 4.83 percentage points from GDP growth.

6. Equity and Financial Markets

S&P 500 Performance: The S&P 500 has rebounded, erasing its year-to-date losses and surpassing its 200-day moving average—a bullish technical indicator. Analysts attribute this recovery to easing inflation and improved trade relations.

7. Federal Reserve Policy Expectations

Interest Rates: As of May 7, 2025, the Federal Reserve maintained the federal funds rate at 4.25%–4.50%, citing uncertainties due to recent tariff implementations. While some economists anticipate potential rate cuts later in the year, the Fed has adopted a cautious stance, awaiting clearer economic indicators.

8. Business Investment

Despite widespread predictions that Trump’s 2025 tariffs would chill business investment, the latest data shows U.S. private nonresidential fixed investment rose to $3.595 trillion in Q1 2025, a 2.37% quarterly increase and 3.59% year-over-year, defying expert forecasts of stagnation. The Equipment Leasing & Finance Foundation projected just 2.8% growth in equipment and software investment for the year—already being outpaced early in 2025.