Ed Yardeni, the veteran Wall Street strategist known for his bullish ‘Roaring 2020s’ thesis, is dialing back optimism and raising stagflation alarms as a new wave of U.S. tariffs threatens to throttle corporate margins and push inflation higher.

In his latest Yardeni’s quicktake, the analyst reduced the odds of his Roaring 2020s scenario for the decade from 65% to 55%, while raising the probability of a stagflationary outcome—defined as slowing growth coupled with elevated inflation—to 45%.

That shift, Yardeni said, stems from President Donald Trump's newly announced 25% tariff on imported autos and parts, effective April 3, adding to the burden of earlier tariffs on steel and aluminum.

The latest tariff salvo—soon to be followed by a likely 20% blanket duty on all imported goods—is expected to raise input costs for businesses across sectors, with consumers likely to face rising prices.

Read also: US Economy Faces ‘Fork In The Road’: Is Yardeni’s ‘Roaring 2020s’ Still Possible?

How Tariffs Are Fueling Inflation Fears

Yardeni now sees the 2025 inflation rate, measured by the Personal Consumption Expenditures Deflator – the Federal Reserve's preferred inflation gauge – rising to 3.0%-4.0%, up from the prior 2.0%-3.0% estimate.

While supercore inflation—which strips out volatile components like housing—has been trending lower, that progress may stall, according to the expert.

Durable goods prices, which had been in deflation, are now expected to rise again in the second quarter, while nondurable goods inflation could top 1.5% year-over-year.

"The end of goods deflation combined with sticky and too-high services inflation risk sending inflation expectations—and therefore actual inflation—climbing out of control," Yardeni said.

“A happy outcome would be that the U.S. would negotiate tariff reductions, but that won’t happen if the U.S. slaps a 20% tariff on all imports across-the-board just because Peter Navarro has convinced the President that tariffs will bring $6 trillion in revenue over the next 10 years,” he added.

Profit Margins Under Pressure

While revenue expectations remain unchanged for now, Yardeni said he's trimming his 2025 and 2026 earnings forecasts for the S&P 500 index.

This year's earnings per share estimate was cut from $275 to $260, and the 2026 projection was lowered from $320 to $300, reflecting “squeezed profit margins” from rising costs.

Yardeni's S&P 500 price targets have adjusted accordingly. He now expects the index to land between 5100 and 6000 by year-end, with a modest move higher to 5950–7000 in 2026.

The S&P 500 index – as tracked by the SPDR S&P 500 ETF Trust ( SPY ) – ended the first quarter of the year with a contraction of 4.6%, notching the worst quarterly performance since mid-2022.

Will The Fed Move? Yardeni Says No

The Federal Reserve's next steps remain a wild card. Tariffs add complexity to an already delicate balancing act: fighting inflation without crippling growth.

Some observers fear that unanchored inflation expectations—when households and firms begin acting as if inflation will stay high—could create a self-fulfilling feedback loop.

Yardeni, however, doesn't see the Fed reacting aggressively. He's sticking with a "none-and-done" view for 2025—meaning no further rate cuts. That contrasts with growing market chatter about a potential pivot in response to slowing growth.

Currently, market-based interest rate forecasts – as tracked by the CME FedWatch Tool – are fully pricing in three rate cuts by year end.

“Inflation expectations is likely to be one of the Federal Reserve's phrases of the year,” Yardeni said, noting that people's expectations about future inflation are critical to how high inflation actually climbs.

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