Softening sentiment and hard questions

Macroeconomic update for May 2025

A month of tariffs, tension, and souring sentiment has rattled markets and revived fears of a US recession. While hard economic data, such as labor market figures, has remained robust, there is concern that it may soon follow soft data, like consumer sentiment, which has already deteriorated in the wake of President Donald Trump’s trade moves. Nearly half of fund managers now expect an economic downturn within 12 months, according to a Bank of America survey. 

Investors are now asking: Have we passed peak tariff uncertainty? Is a recession inevitable? And will inflation stay under control? And when will the US Federal Reserve be ready to cut interest rates further? The Multi Asset Boutique’s CIO Monthly video explores these questions.  

Key Takeaways

1. Damage done?
   While “peak trade uncertainty” is likely behind us now, the damage to the economy is probably already considerable.
   
   

2. Difficult economic picture to read
   It appears that market participants – and the Federal Open Market Committee - are currently struggling to determine where inflation or the labor market are headed.
   
   

3. Inflation under control?
   Inflation has come down and we don’t expect a significant reacceleration in the next months. One factor is the Organization of the Petroleum Exporting Countries and its allies, which is expected to boost crude oil production in coming months, poised to keep a lid on energy inflation.

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