When the U.S. and China agreed to scale back tariffs earlier this month, the immediate impact was visible not only in global trade chatter but also in the forecasts pouring out of the nation’s top banks. Goldman Sachs and JP Morgan, two of the most influential finance players, have lowered their expectations for a U.S. recession, citing the surprise tariff truce as a key factor. Their move gives a subtle but essential signal: Wall Street’s anxiety about a looming downturn has started to fade, at least for now.
90-Day Tariff Truce Sparks Optimism
On May 12, 2025, the U.S. and China announced a 90-day agreement to reduce tariffs on each other’s goods. The U.S. lowered its tariffs on Chinese imports from 145% to 30%, while China reduced its duties on U.S. goods from 125% to 10%. This mutual de-escalation aims to provide a window for further negotiations and has been met with cautious optimism by financial markets.
Goldman Sachs responded by cutting its 12-month U.S. recession probability from 45% to 35% and raising its GDP growth forecast for the fourth quarter of 2025 from 0.5% to 1.0%.
Similarly, JPMorgan reduced its recession risk estimate from 60% to below 50%, citing the tariff rollback as a significant factor in improving the economic outlook. Their analysts said the de-escalation between the U.S. and China would “provide breathing room” for companies and consumers.
Market Reactions and Economic Indicators
The tariff truce has had an immediate impact on financial markets. Since its announcement, the S&P 500 has gained more than 18% on online trading platforms. Tech and industrial stocks, which are both heavily exposed to tariffs, have seen some of the sharpest rebounds. Goldman Sachs has adjusted its year-end S&P 500 target to 6,100 points, reflecting increased investor confidence.
Inflation indicators have also shown surprising trends. Despite the initial tariff hikes, U.S. inflation fell to 2.3% in April 2025, the lowest since February 2021. Analysts attribute this to factors such as declining fuel and food prices and companies preemptively stockpiling goods before tariffs took effect.
The ripple effect goes beyond indexes. Freight companies are reporting modest upticks in shipments. Manufacturers say canceled orders are being reinstated. Even small firms that rely on overseas inputs are signaling less anxiety.
Cautious Optimism Amid Ongoing Risks
Despite the positive developments, JPMorgan CEO Jamie Dimon warns that a U.S. recession remains possible. He cites ongoing uncertainties, including geopolitical conflicts, rising debt, and fluctuating interest rates, as factors that could still dampen economic growth. Dimon emphasizes the need for stable trade policies to maintain investor confidence and financial stability.
Retailers like Walmart have also expressed concerns. CEO Doug McMillon noted that the company can no longer absorb the increased costs from tariffs and may need to raise prices, particularly as a significant portion of its stock is imported from countries affected by tariffs.
Here’s the twist: Even with the drama of tariffs and retaliations, inflation has cooled. The latest CPI report, released May 15, showed U.S. inflation dropped to 2.3% in April – the lowest level over four years. That’s confounded some predictions that trade barriers would lead to rising consumer costs.
Still, Not Everyone’s Celebrating
Some sectors remain wary and vocal about it. Walmart CEO Doug McMillon warned that his company, which imports heavily from China, won’t absorb future tariff costs..He stated, “Given the magnitude of the tariffs, even at the reduced levels announced this week, we aren’t able to absorb all the pressure given the reality of narrow retail margins”. As a result, Walmart plans to raise prices on certain items, with increases expected to begin at the end of May.
Dimon, too, struck a cautious note. Speaking at the World Economic Forum’s spring summit in Zurich, he rattled off a list of macro risks: “Debt. Wars. Oil. Policy uncertainty. We’re not in the clear.”
Indeed, the 90-day truce could unravel if negotiations falter or political winds shift again. The upcoming presidential election, already casting a shadow over economic planning, may yet redraw the trade map.
Dimon, too, struck a cautious note. Speaking at the World Economic Forum’s spring summit in Zurich, he rattled off a list of macro risks: Debt, wars, and policy uncertainty.
Indeed, the 90-day truce could unravel if negotiations falter or political winds shift again. The upcoming presidential election, already casting a shadow over economic planning, may yet redraw the trade map.
A Step Forward, But Vigilance Required
The recent tariff truce between the U.S. and China has provided a much-needed space for global markets and has led major financial institutions to lower their recession forecasts. However, negotiations are being conducted despite economic uncertainties. While the immediate outlook has improved, sustained economic recovery will depend on successfully resolving trade tensions and implementing stable monetary policies. For now, Wall Street has taken a step back from the brink. The U.S.-China tariff truce has eased immediate economic pressures and reshaped the recession narrative heading into summer. Forecasts have brightened, stocks have rallied, inflation has cooled, and two of America’s biggest banks are telling clients that things might not be excellent, but they’re not collapsing.