UCLA Anderson Forecast economists see gloom in unprecedented national uncertainty

There’s a saying: “There are decades where nothing happens, and there are weeks where decades happen.”

The first ten weeks of the second Trump administration have been weeks of major changes—chief among them, a profound shift in U.S. trade policy.

Given the unprecedented levels of uncertainty caused by the erratic presidency of Donald Trump, UCLA Anderson Forecast economists say the national forecast is subject to numerous risks, including unemployment, inflation, and slow GDP growth.

The UCLA Anderson Forecast’s second quarterly report of 2025 presents a sobering view of the economic landscape for both the United States.

“Our forecast, in a nutshell, is that the U.S. economy will slow down in 2025 and 2026 amid heightened tariffs, deportations uncertainty, and federal spending cuts,” said the report authors. “America’s aggressive tariffs under the second Trump administration aim to reshape global trade but risk higher domestic prices, reduced consumer spending, and a potential recession.”

The national economy, while resilient in early 2025, faces a period of deceleration owing to aggressive trade policies, fiscal instability and labor market disruptions.

In just the first three months of Trump’s second term, the U.S. has implemented several sweeping rounds of tariffs: 25% tariffs on global steel and aluminum imports, 25% tariffs on automobiles and auto parts, reciprocal tariffs on all the trading partners with tariff rates ranging from 10% to 49%, and an astounding 145% tariff on all Chinese imports.

The scale and speed of these measures are unprecedented over a century. Economic uncertainty has surged to levels not seen since the peak of the COVID-19 pandemic, reflected by the monthly economic uncertainty index.

This is both a function of the mercurial changes in policies, changes which can and have been undone at a moment’s notice, and because there exists little data to analyze all of these changes happening simultaneously.

Unsurprisingly, stock markets and consumer sentiment reacted negatively to the potential consequences of this paradigm shift in U.S. trade policy.

At the national level, the economy is grappling with a volatile policy environment.

The effective tariff rate remains elevated at approximately 15%, and the threat of further escalation looms. These tariffs are increasing costs across manufacturing and trade-related sectors, contributing to inflation and weakening the competitiveness of U.S. goods.

Mass deportations of undocumented workers and tariffs on key trade partners will have a significant impact on the U.S economy, since they are expected to suppress job growth and hinder efforts to meet the significant need for new housing.

The current national economic forecast is subject to numerous risks, given the unprecedented levels of economic and geopolitical uncertainty.

Geopolitical tensions remain elevated because of ongoing conflicts around the world, including in Ukraine, Iran, and Gaza. Concerns about a broader conflict in the Middle East persist, and China’s 2027 deadline to annex Taiwan is looming.

In addition, tensions between the U.S. and China have increased as the U.S. has taken a more hostile stance toward China’s geopolitical and economic agendas.

The trajectory of tariffs remains unpredictable.

Many tariffs are imposed merely to provoke a reaction, and as observed with the temporary decoupling from China, this strategy does not always yield the desired results. Other tariffs are implemented to promote domestic industries in the name of national security and are likely to be more enduring.

As tariffs shook financial markets, a rapid sell-off in the Treasury market prompted the administration to pause most of the newly announced tariffs. While this stemmed the bleeding, yields on U.S. government debt continued to climb as the administration criticized the independence of the Federal Reserve.

Furthermore, the pending House of Representatives bill on taxes and spending contains Section 899 — the so-called “revenge tax” — which would give the administration new discretionary powers to tax foreign entities at will and which will make the U.S. an even less desirable place for investment.

This situation, in which the U.S. will need to borrow increasingly larger amounts while simultaneously increasing its perceived investment risk, suggests that greater strains are likely to appear within the financial system.

Although the national labor market showed strength through the spring with robust job growth and low unemployment claims, this momentum is not expected to last. The unemployment rate is projected to rise to 4.6% by the end of the year, with further increases likely to continue into 2026.

Inflation, which had been moderating, is expected to exceed a 4% seasonally adjusted annual rate in the second half of 2025 as tariff-related costs ripple through supply chains. Long-term interest rates are also on the rise, with the 10-year Treasury note projected to peak at 4.7% before gradually declining.

Real GDP growth, which contracted slightly in the first quarter, is expected to slow to near zero in the second half of the year, with only modest recovery anticipated through 2027.

The UCLA Anderson Forecast is one of the most widely watched and often-cited economic outlooks for California and the nation and was unique in predicting both the seriousness of the early-1990s downturn in California and the strength of the state’s rebound since 1993.

The forecast was credited as the first major U.S. economic forecasting group to call the recession of 2001, and, in March 2020, it was the first to declare that the recession caused by the COVID-19 pandemic had already begun.