Investing.com -- The May 12 deal between the United States and China marks a turning point in global macroeconomic dynamics, according to Bank of America.
Analysts at BofA call the de-escalation "much quicker than expected" and, in a note this week, outlined five key macro implications of the deal, which halved the U.S. effective tariff rate—at least through July.
First, BofA expects the deal could lead to "another surge in imports," particularly as companies front-load holiday-related shipments to hedge against future tariff risk.
This would likely "support inventories and capex as well" and alter the contours of second-quarter GDP.
Second, while the deal eases near-term economic pressure, BofA cautions that "there is substantial inflation in the pipeline."
The bank explains that a reduction in tariffs on many Chinese imports might allow core PCE inflation to peak lower than initially expected—potentially closer to 3% year-over-year by year-end, down from BofA’s prior 3.6% forecast.
Third, with reduced tariff burdens, U.S. consumers may see "a smaller loss of wallet share," helping discretionary services.
BofA notes resilience in sectors like air travel and food services, suggesting that consumer spending may be more resilient than expected.
Fourth, the labor market could see a reprieve. Tariff-induced pressure on trade, transport, and warehousing jobs now looks less severe, according to the bank.
"This lowers the risk of a sharp, imminent drop in payrolls," BofA writes.
Finally, the likelihood of Federal Reserve rate cuts in 2025 has diminished. BofA analysts reaffirm their view that "the Fed won’t cut in 2025," citing reduced recession risks and persistent inflation pressures following the trade agreement.