‘We’re Closer To’ Recession: BNY Chief Economist On Trade War’s Worst Case Scenario

Summary

Vincent Reinhart, Chief Economist at BNY Investments, discusses the February 2025 CPI report, sticky inflation, and the Fed's patient approach to rate cuts. He analyzes the economic impact of steel, aluminum, and reciprocal tariffs, arguing that tariffs are likely transactional but could become a persistent drag if permanent. He also covers growth headwinds, global liquidity pressures, the debt ceiling, labor market balance, and a roughly 20% US recession probability this year.

• CPI inflation came in higher than expected, with sticky components keeping the last mile difficult.
• Reinhart expects the Fed to remain patient but sees room for rate cuts in 2025 if inflation edges lower.
• Tariffs are viewed as transactional for now, but permanent tariffs would reduce trade and weigh on global profits.
• Steel and aluminum tariffs are unlikely to have a large CPI impact due to dollar appreciation and margin absorption.
• Global liquidity faces pressure from diverging central bank policies and continued Fed QT.
• The debt ceiling is a recurring game of chicken that is likely resolved but carries tail risk.
• Labor market is expected to stay balanced with slowing employment gains and unemployment around 4-4.25%.
• Reinhart puts the probability of a US recession this year at about 20%, rising next year.