Evelyn Reynolds

The IMF projects the U.S.’s overall federal deficit will dip to 6.5% of gross domestic product this year, down from 7.3% in 2024
The multinational fund cited higher tariff revenues for the decline
The IMF highlighted uncertainty surrounding the rollout of higher tariffs and potential revenue increases

A security guard stands outside the building near signs advertising the International Monetary Fund/World Bank Spring Meetings in Washington, DC, on April 17, 2025.
Jim Watson | AFP | Getty Images

The International Monetary Fund forecasts U.S. tariffs will help lower the country’s fiscal deficit a touch in 2025 even as the U.S. growth and inflation outlooks worsen thanks to an intensifying trade war.
The 191-nation’s Fiscal Monitor report released Wednesday projects the U.S.’s overall federal deficit will fall to 6.5% of gross domestic product this year, down from 7.3% in 2024. 

The narrower gap between spending and revenue is “contingent on higher tariff revenues,” according to the report. 
The level was calculated based on the IMF’s “reference point” forecasts, which account for tariff announcements made as of April 4. This includes the U.S.’s reciprocal tariffs announced on April 2, but excludes subsequent rollouts such as the 90-day pause on higher rates and the exemption on smartphones, semiconductors and other technology goods. 
Against this backdrop, the deficit is estimated to fall to 5.6% of GDP in the medium term as revenues rise 0.7%, according to the IMF.
Uncertain revenue
To be sure, the report noted “the magnitude of the tariff revenue increase is highly uncertain.” 
One of the caveats to the reduced deficit projection is the degree to which tariffs will put downward pressure on imports into the U.S., itself dependent largely on how consumers respond to higher prices. This varies widely across products, the report noted. 

Moreover, “the tariff schedule itself is uncertain and plays a crucial role,” the report continued. 
The IMF acknowledged another risk to its forecast: whether tariffs lead to a wider slowdown in economic activity that could lead to a downturn in other segments of tax revenue — such as income tax — that offset higher revenues from tariffs. 
“These projections are highly uncertain and do not account for measures under discussion in Congress, under budget reconciliation” negotiations, the fund said. 
Yields on the benchmark 10-year Treasury note have surged in recent weeks, last trading near 4.40%, as higher tariffs were announced, inflation forecasts raised and as the dollar declined.
If the total size of U.S. government debt continues to surge, the IMF thinks it will push up longer-term interest rates and the cost of financing the debt.
“Specifically, an increase of 10 percentage points of GDP in U.S. public debt between 2024 and 2029 could lead to a 60-basis-point rise in the 5-year forward to 10-year rate,” the IMF staff wrote. One basis point equals 1/100th of a percent, or 0.01.
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Jerome Powell is chair of both the Fed Board of Governors and the Federal Open Markets Committee, which sets interest rate policy.
Paul Ashworth, chief North America economist at Capital Economics, said firing Powell won’t necessarily change the minds of others at the Fed.
“In all likelihood, however, firing Powell would just be the first step in dismantling the Fed’s independence,” Ashworth wrote.

U.S. President Donald Trump speaks to the media during the annual White House Easter Egg Roll, on the South Lawn of the White House in Washington, D.C., U.S., April 21, 2025.
Leah Millis | Reuters

President Donald Trump’s public criticism of Fed Chair Jerome Powell has fueled concern that he will try to fire the central bank chief, but even that historic and legally questionable move may not be enough for Trump to bend monetary policy in his preferred direction.
Even firing Powell won’t necessarily get Trump the rate cuts he wants, according to multiple economists.

“In all likelihood, however, firing Powell would just be the first step in dismantling the Fed’s independence. If Trump is set on lowering interest rates then he will have to fire the other six Fed Board Members too, which would trigger a more severe market backlash, with the dollar falling and rates at the long end of the yield curve rising,” said Paul Ashworth, chief North America economist at Capital Economics, in a recent note.
Powell is chair of both the Fed board of governors and the Federal Open Market Committee, which sets interest rate policy. Ashworth pointed out that, while FOMC members usually choose to make the president-appointed board of governors chair to lead them, they can buck Trump and choose someone else as head of the rate-setting committee. And JPMorgan’s chief U.S. economist, Michael Feroli, said in a note Monday that “most of the power of the leadership stems from the historical deference” rather than the actual mechanics of the job.
Deutsche Bank senior economist Peter Sidorov echoed the idea that individual Fed members might vote against the wishes of a new leader if they feel Trump has overstepped.
“Note that while the Fed Chair has significant influence over the FOMC, monetary policy actions are taken by a majority vote so removing Powell could lead to increased pushback from other members against pressure on the Fed to deliver easier policy,” Sidorov said in a note to clients Tuesday.
This discussion on Wall Street comes after Trump has criticized Powell multiple times in recent days, including calling the Fed chair “a major loser” in a social media post Monday that rocked financial markets. White House economic advisor Kevin Hassett said last week that the president and his team were exploring the possibility of removing the Fed chair.

It is unclear whether Trump even has the authority to remove Powell before his term as board of governors chair ends next year. Powell has previously said he does not believe it is legally allowed for the president to fire him. The Supreme Court is set to hear an appeal about Trump’s firing of board members at other federal organizations in a case that could shed light on what’s next for the Fed.
The speculation about changes at the Fed, along with the ongoing tariff uncertainty, appears to have hurt investor confidence in the United States. U.S. stocks, bonds and the dollar have all fallen in recent weeks.
Wall Street pros worry that changes at the Fed could lead to further sell-offs and fears of higher inflation.
“Any reduction in the independence of the Fed would add upside risks to an inflation outlook that is already subject to upward pressures from tariffs and somewhat elevated inflation expectations,” Feroli said in a note to clients.
“It has been hoped that these adverse consequences would dissuade the president from threatening Fed independence, though so far the president has often followed through on his intentions,” he added.
— CNBC’s Michael Bloom contributed reporting.

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Speaking on the sidelines of the IMF World Bank Spring Meetings, European Central Bank President Christine Lagarde said she wouldn’t comment on the market implications of an event she hoped was “not on the table.”
U.S. President Donald Trump has been ramping up pressure on Fed Chairman Jerome Powell to reduce interest rates, warning the U.S. economy could slow down otherwise.
Powell had in turn last week suggested that Trump’s trade war could weigh on growth and fuel inflation.

European Central Bank President Christine Lagarde on Tuesday said she hoped that U.S. President Donald Trump firing Federal Reserve Chair Jerome Powell was not a scenario that was on the table.
Asked by CNBC’s Sara Eisen whether Trump finding a way to remove the central bank chief was a material risk to markets, Lagarde said: “I certainly hope not … I hope that it is not a risk.”

Trump appointed Powell during his first presidential mandate, but is now looking into whether the Fed chief can legally be sacked before his term expires.
Speaking on the sidelines of the IMF World Bank Spring Meetings, Lagarde told CNBC that she would not comment on the market implications of an event she hoped was “not on the table.”
Trump has been ramping up pressure on Powell to reduce interest rates, warning the U.S. economy could slow down otherwise.
Powell in turn last week suggested that Trump’s trade war could weigh on growth and fuel inflation. He did not indicate his expectations for the interest rate path ahead, but noted that “for the time being, we are well positioned to wait for greater clarity before considering any adjustments to our policy stance.”
Lagarde told CNBC on Tuesday: “We’re both used to political pressure in one way or the other.”

“I have immense respect for the work that he does, and for his loyalty to his job and to being as diligent, disciplined as possible to deliver on his mandate. For him, I think, I’m sure as it is for me, the mandate is our compass. We have to deliver on our mandate.”

The ECB and the Fed have been diverging on monetary policy.
The euro area’s central bank has consistently cut rates as inflation closes in on its 2% target and economic growth in the bloc appears lackluster. The Fed has meanwhile been keeping rates steady this year, after enacting three consecutive reductions between September and December last year.

The ECB last week cut interest rates by a further 25 basis points, making its third reduction of 2025 and its seventh trim since it began easing monetary policy last summer. In its monetary policy statement, the central bank warned of a weakened growth outlook linked to the global trade uncertainty stoked by Trump’s tariff policy.
Trump has cited ECB rate cuts during his recent attacks on Powell. On Monday, he posted on his Truth Social platform that the central bank had already cut rates seven times, and again branded Powell “Mr. Too Late.”

Scope for EU-U.S. trade negotiation

Lagarde also discussed the impact of Trump’s market-rattling tariff policy, saying that the tariff rate currently faced by the euro zone was higher than the blanket 10% now imposed on U.S. trading partners since it included 25% duties on steel, aluminum and autos. The European Union could be slapped with universal 25% tariffs without a deal.
“I am sure that there is scope for negotiations. It’s in the nature of policymakers to want to sit down and and argue their case and point out their imperatives, their red lines, their vulnerabilities, and I’m sure that there can be a dialog,” Lagarde said.
“I would be surprised if there was not such a thing,” she added.
The EU has currently paused its first tranche of counter-tariffs, a response to the rates on metals, while it engages in talks.
Lagarde said she disagreed with Trump’s view that the EU treats the U.S. unfairly on trade because of its goods surplus, noting that the relationship also spanned services and foreign direct investment.
“There is so much joint interest” between the U.S. and Europe, she said. “There might be sectors where serious negotiations need to be had, but it’s as always with trade … it’s not just in on one side, it’s on both sides.” More

The International Monetary Fund lowered its 2025 projections for U.S. growth to 1.8%, reflecting a cut of 0.9 percentage point from the forecast it delivered in January.
“The April 2 Rose Garden announcement forced us to jettison our projections — nearly finalized at that point — and compress a production cycle that usually takes more than two months into less than 10 days,” said IMF chief economist Pierre-Olivier Gourinchas.

A woman walks past the International Monetary Fund ahead of the International Monetary Fund/World Bank Spring Meetings in Washington, DC, on April 17, 2025.
Jim Watson | AFP | Getty Images

Tariffs are posing major headwinds for the U.S. and global economies, leading the International Monetary Fund to slash its 2025 growth forecast.
President Donald Trump’s April 2 rollout of “reciprocal” tariffs has not only shaken stocks – the S&P 500 is down 9% since the levies were launched – but they also have set off countermeasures from other trading partners.

“This on its own is a major negative shock to growth,” the IMF said in the executive summary of its April 2025 World Economic Outlook.
This new outlook includes a “reference forecast” for global economic growth and inflation, based on data available as of April 4 — including the “reciprocal” tariffs but excluding subsequent developments like the 90-day pause on higher rates and the exemption on smartphones — and updates the earlier outlook the IMF shared in January.
In its new projections, the IMF now calls for a U.S. growth outlook of 1.8% in 2025, down 0.9 percentage point from its January forecast.
The IMF also cut back its global growth forecast to 2.8% in 2025, down 0.5 percentage point from its previous estimate.
“The April 2 Rose Garden announcement forced us to jettison our projections — nearly finalized at that point — and compress a production cycle that usually takes more than two months into less than 10 days,” chief economist Pierre-Olivier Gourinchas wrote in the April report. 

“The common denominator … is that tariffs are a negative supply shock for the economy imposing them,” he said. 
Higher inflation forecasts for advanced economies
The IMF also revised its expectations for headline inflation for advanced economies, which include the U.S., the United Kingdom and Canada, to 2.5% for 2025, reflecting an increase of 0.4 percentage point from January’s projection.
The U.S. inflation outlook was also revised higher by 1 percentage point from January, where it was estimated above the 2% range.
“For the United States, this reflects stubborn price dynamics in the services sector as well as a recent uptick in the growth of the price of core goods (excluding food and energy) and the supply shock from recent tariffs,” the IMF noted in its April report.
The increase in inflation for major economies was offset by downward revisions across certain emerging markets and developing economies. 
The extent to which the levies pressure central banks’ efforts to lower inflation is contingent “on whether the tariffs are perceived to be temporary or permanent,” according to the IMF’s report. 
Previous bouts of market volatility have led to the U.S. dollar strengthening relative to other countries, creating upward inflationary pressure in other countries. However, the dollar has reversed this trend amid the recent market sell-off. 
“The effect of tariffs on exchange rates is not straightforward,” per Gourinchas. “In the medium term, the dollar may depreciate in real terms if tariffs translate into lower productivity in the US tradables sector, relative to its trading partners.”
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Chicago Fed President Austan Goolsbee said Sunday that President Donald Trump’s tariffs are causing U.S. business owners to stock up on inventories.
“Preemptive purchasing” by businesses, as well as consumers, of big-ticket items at pre-tariff prices may cause an “artificially high” level of economic activity, the central banker said.
The temporary bump could be followed by a corresponding drop-off in the summer, Goolsbee said.

Austan Goolsbee, President and CEO of the Federal Reserve Bank of Chicago, speaks to the Economic Club of New York in New York City, U.S., April 10, 2025. 
Brendan McDermid | Reuters

Business owners and CEOs are already stocking up on inventory, and some American shoppers are panic buying big-ticket items in anticipation of President Donald Trump’s tariffs. The sudden buying binge could cause an “artificially high” level of economic activity, said Federal Reserve Bank of Chicago President Austan Goolsbee.
“That kind of preemptive purchasing is probably even more pronounced on the business side,” Goolsbee told CBS’ “Face The Nation” on Sunday, adding: “We heard a lot about preemptive building-up of inventories that could last 60 days, 90 days, if there [was] going to be more uncertainty.”

Businesses stockpiling inventory and consumers accelerating their purchasing decisions — buying an Apple iPhone now, say, rather than waiting until the fall — may inflate U.S. economic activity in April and lead to a slowdown in the coming months, Goolsbee suggested.
“Activity might look artificially high in the initial, and then by the summer, might fall off — because people have bought it all,” he said.
Sectors affected by Trump’s tariffs, particularly the auto industry, are most likely to heavily stock up on inventory now before import levies on goods from other countries potentially rise further, said Goolsbee. Many car parts, electronic components and other big-ticket consumer items are manufactured in China, for example, which currently faces a 145% total tariff rate on goods imported to the United States.
Trump’s tariffs on a bevy of other countries are currently in the middle of a 90-day pause, with a 10% baseline tariff rate instead applying to all imported goods across the board. The pause is due to expire on July 9, with Trump touting a series of rate negotiations with foreign leaders between now and then.
“We don’t know, 90 days from now, when they’ve revisited the tariffs, we don’t know how big they’re going to be,” Goolsbee said.

Some U.S. business owners who buy goods manufactured in China say they already can’t afford to place rush orders on inventory. Matt Rollens, owner and CEO of Granite Bay, California-based novelty drinkware company Dragon Glassware, says he’s temporarily holding his products in China because paying the 145% levy would force him to raise consumer prices by at least 50%, likely drying up customer demand.
Rollens has enough inventory in the U.S. to last roughly until June, and hopes the tariffs will be rolled back by then, he told CNBC Make It on April 11.
Short-term uncertainty and financial pain aside, the Fed’s Goolsbee expressed optimism about the country’s longer-term economic outlook.
“If we can get through this, it’s important to remember: The hard data coming into April was pretty good. The unemployment rate [was] around steady full employment, inflation [was] coming down,” he said. “It’s just a desire of people expressing they don’t want to back to ’21 and ’22, at a time when inflation was really raging out of control.”
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