5 ways Wells Fargo economists say tariffs will ‘significantly’ slow the economy

U.S. economic growth will slow significantly this year amid uncertain policies and tariffs reaching the highest rate in over a century, Wells Fargo economists say.

“The U.S. economy came into this year doing pretty well,” Jay Bryson, chief economist at Wells Fargo, said Thursday. “But, unfortunately, growth has slowed.”

During a conference call Thursday, Wells Fargo economists discussed the economic implications of tariffs. On Wednesday, President Donald Trump paused higher tariffs on most countries, except China, for 90 days. Tariffs are a tax on imports coming into the U.S. that those importers pay.

With 10% across-the-board tariffs for all U.S. trading partners and 125% on China, Wells Fargo economists calculate the effective tariff rate at 27%.

“That is the highest rate it’s been in over a century,” Bryson said, mostly because of the rate on China.

A “significant slowdown” in GDP growth this year will lead to stagflation, Wells Fargo economists said. Stagflation is the combination of high inflation, stagnant economic growth and high unemployment.

“We’ve got inflation rate moving up, weaker growth, the unemployment rate coming up,” Bryson said.

During an earnings call Friday, CEO Charlie Scharf also warned that tariffs could slow economic growth.

“We support the administration’s willingness to look at barriers to fair trade for the United States, though there are certainly risks associated with such significant actions,” Scharf said. “We expect continued volatility and uncertainty and are prepared for a slower economic environment in 2025, but the actual outcome will be dependent on the results and timing of the policy changes.”

Based in San Francisco, Wells Fargo has its biggest employee base in Charlotte, with about 27,000 workers here.

Here are five ways tariffs could affect the economy in Charlotte and the U.S.:

Elevated inflation

Even as inflation has come down over the past few years, it’s still running above the Federal Reserve’s 2% target rate.

“The issue with this is that the longer you see elevated inflation, it can become ingrained in expectation,” Wells Fargo senior economist Sara House said. “You’re essentially normalizing these rates of inflation, and that can make it harder for the Fed to eventually get back to a lower level.”

Inflation is expected to rise to 3.5% by the end of the year, mostly coming from the higher price of imported goods, she said.

“We will see inflation move higher this year,” House said.

Less business investment

As businesses absorb higher tariff costs, their profit picture weakens and they will be less inclined to invest, particularly on equipment and structures, House said. Real business fixed investment is up just over 2% over the past year, which is lower than GDP.

“We’re expecting investment to slow, especially as those profits get squeezed,” she said.

Uncertainty over fiscal and immigration policies also could dampen business activity.

“There’s still a lot of questions to be answered for businesses who are trying to navigate this environment,” House said.

If a business is thinking of opening up a facility or expanding in the U.S., for example, they want to know what that cost structure would be when that facility opens in a couple of years.

“There are still a lot of questions remaining that could dampen activity here in the near term, even beyond how much tariffs are going up,” House said.

Higher unemployment

The U.S. has added about 150,000 jobs over the past few months. But as companies see a squeeze on profit margins, the labor market will weaken.

“We’re expecting hiring to come close to grinding to a halt by (the) fourth quarter,” House said.

The unemployment rate is expected to rise to 4.6% by the end of the year, House said. Typically, around 4% or below is a sign of a healthy job market.

“We’re not seeing businesses bring on a lot of new workers right now, so they’ve already reduced their hiring,” House said. “That suggests that there’s not a lot of room as demand weakens before companies have layoffs.”

‘Double whammy’ on consumer spending

Higher inflation is going to dent consumer purchasing power, House said.

In a softer labor market with slower wage growth and higher inflation creating slower income growth, it “creates a double whammy for the consumers,” House said.

“We think spending is going to slow over the course of this year,” House said.

Weakening the dollar

Relative to major currencies like the Swiss franc, Japanese yen and the euro, the dollar has weakened in response to the tariffs, Wells Fargo internationalist economist Brendan McKenna said.

That’s because policy uncertainty stems from the U.S. and is a justification to shun the U.S. dollar, he said.

The U.S. growth outlook has worsened “pretty significantly” and financial markets have adjusted to worsening U.S. growth prospects.

“The yield differential that’s associated with the dollar has worsened over the last few months,” McKenna said.

Globally, tariffs could push the world economy into a recession, with growth forecast at 2.3%.

But there is good news on the horizon.

“We think things will rebound in 2026 as the brunt of tariff shock passes,” House said. “But it does stand to be a pretty tough year this year.”

This story was originally published April 11, 2025 at 1:54 PM with the headline "5 ways Wells Fargo economists say tariffs will ‘significantly’ slow the economy."