By Caitlin McCabe

The global finance industry is braced for a recession before the year is out.

The U.S. economy is likely to shrink by an annualized 0.8% in the third quarter, and 0.3% in the last three months of 2025, according to a note Monday from the Institute of International Finance.

The IIF cited "intensifying policy-driven uncertainty across trade, inflation, and growth." Some other key points from the body, which represents some 400 banks, hedge funds and other financial firms:

-- Tariffs could help lift inflation, as measured by annual core PCE, toward 4.6% by year-end. The gauge, which is favored by the Federal Reserve, was running at at 2.8% as of February.

-- Growth next year is likely to total just 0.8%.

-- The Fed could make three quarter-point interest-rate cuts in the second half, and three more next year. Futures pricing shows a nearly 70% chance the Fed cuts in June.

-- The IIF team pointed to crumbling consumer sentiment and a March slowdown in U.S. manufacturing, as signs of a weakening economy after some strong data so far this year.

IIF economists said the downturn would be self-inflicted, calling it a "a more manufactured deceleration"-rather than resulting from an external shock like the 2008 financial crisis or the 2020 Covid-19 pandemic.

The likely slowdown is due to shifting tariff policy and a Trump administration "that is increasingly willing to use trade and migration policy as macroeconomic and geopolitical levers," the IIF's Marcello Estevão and Jonathan Fortun wrote.

This item is part of a Wall Street Journal live coverage event. The full stream can be found by searching P/WSJL (WSJ Live Coverage).

(END) Dow Jones Newswires

April 22, 2025 07:38 ET (11:38 GMT)

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