America’s soft landing at risk: RBC

That data includes both soft and hard metrics. President Donald Trump’s trade rhetoric has infected consumer and business leader sentiment, according to the report. Studies by both the University of Michigan and Conference Board confirmed that views have soured in recent weeks. The former dropped in January after five consecutive months of an improving outlook. The Conference Board’s research showed a decline in December and January.

In February, the National Federation of Independent Business reported that just 15% of respondents in its study were planning to grow their employee base in the next three months.

In an interview, Reid described the emergence of a “K-shaped economy,” in which lower- and middle-income Americans aren’t seeing the kind of wage gains they need to manage their debt. “They have more exposure to this high-rate environment,” he said. “That’s really starting to weigh on them.”

Meanwhile, outstanding consumer credit debt is trending up. “It’s likely middle- and lower-income folks putting their consumption on those credit cards,” he said. “At some point, you know, they’re going to have to pull back. That means a hit to consumption down the road.”

Following the pandemic, the Fed implemented a series of hikes to the federal funds rate that reached a peak of 5.25%–5.5% last year. It has since come down to 4.25%–4.5%, a level that can still make debt carrying costs difficult.

RBC reported that Americans are spending 2.5% of their monthly disposable income on non-mortgage interest payments.

The cost of living

Inflation risk is showing up in sentiment studies too, including the Institute for Supply Management (ISM) Manufacturing and Services indices. In its February report, ISM quoted a respondent in the food, beverage and tobacco products sector saying, “Inflation and pricing pressure continue to drive uncertainty in our 2025 outlook. We are seeing volume impacts due to pricing, with customers buying less and looking for substitution options.”

The bank’s inflation forecast is in the 2.5%–3% range for this year. “Obviously that’s kind of a moving target, given how this kind of trade war is unfolding,” Reid said. “That’s something that could be subject to a bit of revision.”

Tariffs aren’t the only threat to the cost of living in the U.S. Lower immigration rates are a risk, “because the U.S. is already facing a structural shortage of workers,” he said. “We have an aging population. We’re seeing record numbers of retirement here. … We saw 1.6 million last year and we’re expecting to see a similar number this year. That’s going to ultimately lead to upward pressure on wages.”

Reid expects housing prices to rise too. “[The market has] already rebounded, so that would start adding upward pressure.”

His concern is that mortgage rates will make it tough on home buyers. “Existing homeowners are locked in at favourable rates and new homeowners are facing an affordability crisis right now,” he said.

Also last month, the Fed’s Beige Book reported that prices were up “moderately,” and that companies “expected potential tariffs on inputs would lead them to raise prices.” Some have already done so, according to the Fed.

Meanwhile, Elon Musk is taking a chainsaw to the U.S. public sector. Washington announced 10,000 job cuts in February, but that number is likely to grow dramatically. RBC’s report noted that initial unemployment claims by former government workers rose greater than 100% during the week of Feb. 22.

Trump implemented a 25% tariff on steel and aluminum imports into the U.S. today, including from Canada. In response, Ottawa announced it will apply 25% tariffs on $29.8 billion worth of U.S. goods.

Trump has also threatened to slap a 25% tariff on other Canadian goods, a 10% tariff on Canadian energy and a series of retaliatory tariffs on any country that taxes U.S. exports, beginning April 2.