The U.S. economy contracted more than expected in the first quarter of 2025, with GDP shrinking at an annualized rate of 0.5%, down from a previously estimated 0.2% decline. This marked the first economic pullback since 2022 and reflected the early strain from President Trump’s sweeping tariffs. The drag was magnified by a rush of imports, as businesses hurried to secure goods ahead of rising costs, which under the GDP formula, subtracted from overall output. Decreased government spending also dampened performance, although some support came from stable consumer activity and business investments.
The downward revision was primarily tied to lower estimates for consumer spending and exports. While inflation data so far remains relatively contained, many economists warn that the broader effects of the tariffs could begin surfacing in the second half of the year. Barclays analysts noted that global repercussions from U.S. trade policy are likely to be more pronounced by late 2025. Federal Reserve Chair Jerome Powell echoed caution, stating the central bank will hold off on interest rate changes until more clarity emerges regarding these trade disruptions.
In labor market news, first-time unemployment claims dropped to 236,000 last week, but continuing claims jumped to 1.974 million the highest since late 2021. The data suggests a softening in hiring without significant job cuts, adding another layer of complexity for the Fed. With the unemployment rate expected to inch up to 4.3% in June, pressure is mounting for rate cuts. Despite this, Powell emphasized a data-driven approach, reinforcing the Fed’s current stance of waiting for more conclusive inflation signals before making monetary moves.
Investor focus is now on the upcoming release of the Personal Consumption Expenditures (PCE) Price Index, the Fed’s preferred inflation gauge. A stronger-than-expected result could justify Powell’s restraint, potentially bolstering the U.S. dollar in the short term. However, political friction may complicate this outlook. Trump, openly critical of Powell, has suggested naming his replacement as early as September, raising concerns over central bank independence. Unlock your financial potential with expert trading courses by MJFXM – your trusted partner in Forex, Crypto, and Stock Market education.
Meanwhile, in the energy sector, delays in replenishing the Strategic Petroleum Reserve have stirred fresh debate. While Trump pledged to refill the reserve to capacity, site maintenance has pushed full deliveries into late 2025. The current administration’s earlier drawdowns, criticized for their timing and scale, have left gaps that will take years and billions to fully reverse.