Continued tariff uncertainty slowing investment, driving inflation

As tariff uncertainty persists, slowing investment activity and inflationary pressures present new concerns for equipment dealers and lenders. 

Tariffs remain a mixed bag for companies, contributing to continued economic uncertainty, Cedric Chehab, chief economist at economic research firm BMI, said today during a Fitch Solutions webinar. 

Tariffs are at about 14%, “much lower” than the 25% his firm calculated they would be after “Liberation Day,” April 2, he said. Liberation Day being the term President Trump used on April 2, when he announced the beginning of his new tariff strategy, which included some of the largest hikes in U.S. history. 

“Essentially, the good news is that they’re lower,” he said. “The bad news is that they’re going to remain structurally higher, and they’re going to remain structurally higher because [President Donald] Trump‘s policies are structural in nature.” 

Equipment and software investment, which the Equipment Leasing and Finance Association now forecasts to expand 2.8% for 2025 after an initial forecast of 4.7% at the end of 2024, faces continued challenges if tariff uncertainty persists, Chehab said. 

“If we were to see less tariff uncertainty unfold, then that could see investment pick up,” he said. “As long as we’re seeing tariff uncertainty, we’re going to have a lot of investors and households on pause.” 

Macroeconomic pressures 

In addition, the rise in durable goods orders in April drove up the Personal Consumption Expenditures Price Index by 2.1%, according to the Bureau of Economic Activity. The index has increased every month this year, another warning sign for macroeconomic conditions, Winnie Cisar, global head of strategy at global credit research firm CreditSights, said during the webinar. 

“The April data did show the biggest month-on-month increase in durable goods inflation in the PCE deflator since 2022, which is not music to anybody’s ears,” she said.  

“When we consider the potential for supply chain disruptions from tariffs and the retroactive impact of the proposed ‘big, beautiful tax bill,’ it does seem like we could be setting up for a resurgence of a combination of some supply-side inflation pressures and a little bit of a fiscal windfall to some consumers, which is not great for the trajectory of prices.” 

While macroeconomic concerns persist, recession risks show signs of declining, BMI’s Chehab said. 

“If you look at consensus estimates, recession risks were about 40% for the global economy, and that remained quite stable,” he said. “If you look at more volatile and higher frequency indices like Polymarket, recession odds were as high as around 65% and now they’ve fallen to 40%, basically on the fact that there’s been a significant de-escalation.”