Federal Reserve's inadequate inflation control leaves President Trump to manage economic fallout

Goldman Sachs just slashed its growth forecast for 2025 from 2.4% to 1.7%. Inflation expectations were also bumped up to 3%, higher than the previous estimate of 2.5%. Wall Street is finally catching up to reality. The economy isn’t in great shape, and the warning signs are everywhere.

Talk of “recession” is picking up fast, showing up more in financial reports, social media, and Bloomberg terminal searches. Credit spreads are widening, signaling growing concerns about risk in the market. The cracks in the economy were always there, but now they’re impossible to ignore. Some point to strong stock markets and growth numbers, but that ignores the sluggish housing sector and a job market that has been cooling for months.

Wall Street is getting jittery for another reason: uncertainty over policy direction. Trump is sending a clear message—this time, things will be different. Tariffs are back on the table, and he has no intention of backing down. There’s no one like Gary Cohn in the room to quietly toss Peter Navarro’s trade memos in the trash. That means economic policy is about to get a whole lot more unpredictable, and markets are reacting accordingly.

The Federal Reserve shoulders much of the blame for the mess we’re in. They failed to take aggressive action on quantitative tightening, opting for slow roll-offs instead of truly tightening financial conditions. The result? Inflation remained stubbornly high, fueled by inflated asset prices and the wealth effect keeping spending strong. The Fed had the chance to crush inflation earlier, but they dragged their feet. Now, Trump has to do the job for them, and it won’t be pretty.