The news: The International Monetary Fund (IMF) downgraded its US growth forecast, citing tariffs and policy uncertainty, which will weigh on both domestic prospects and the global economy.

• The US economy is now expected to expand 1.8% this year, nearly a full percentage point lower than what the IMF anticipated just three months ago.
• That will drag down the global economy, which is expected to grow just 2.8% this year, compared with the 3.3% expansion it recorded in 2024.

The big picture: The IMF’s report—like our own—lays bare the risks that tariffs and uncertainty pose to growth. Tariffs are driving prices up while dragging consumer sentiment and demand down—a worrying sign given the US economy’s dependence on consumption.

• While robust spending from higher-income consumers has helped to keep the US economy humming over the past few years, the volatile stock market is rattling their confidence.
• The outlook among US consumers with annual incomes of at least $100,000 fell by 11.8 points in April, per the Bain/Dynata Consumer Health Index, more than any other consumer cohort.
• With households of all income levels losing confidence, the outlook for retail spending is considerably challenged. Should the Trump administration stick to the “Liberation Day” tariff plan, retail sales could decline this year, even assuming inflationary pressures, per our forecast. Even a less punitive tariff environment will cause growth to slow, as shoppers curb spending on all but the necessities.

Uncertainty takes its toll: Compounding the issue of tariffs—especially for businesses—is the fact that no one, not even President Donald Trump, knows what their final form will look like. Without the ability to plan ahead, not just on tariffs but across other policy shifts from the current administration, companies are entering survival mode. That includes containing or slashing costs where they can—including through layoffs—and pulling back on long-term investment plans.

• The trend is most obvious in the auto sector, with manufacturers idling factories and laying off workers as they struggle with how best to mitigate tariffs—and whether it’s worth billions of dollars in investments to build out more US production capacity. Volvo recently announced it would be laying off as many as 800 workers in the next few months across three US facilities due to weaker demand and uncertainty related to the tariffs, joining companies like Stellantis and General Motors.
• But it’s also hitting companies like Saks Global, which is laying off 450 workers and shuttering a Tennessee fulfillment center as conditions in the already-struggling department store sector grow more challenging.
• While tariffs are pushing some companies—like Hyundai and Apple—to invest billions in US manufacturing, most are holding back as uncertainty diminishes their appetite for risk.

Our take: As the IMF report makes clear, uncertainty, not tariffs, is the biggest threat the US economy faces right now. Not only is it weighing heavily on consumer confidence, it’s also chilling business activity and investment, and raising the risk of a global recession.