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How are we thinking about the February Supreme Court ruling on tariffs, and U.S. GDP?
We received two key pieces of macro news for the U.S. on Friday: 1) In a 6-3 ruling, the Supreme Court overturned President Trump’s IEEPA tariffs and 2) 4Q25 U.S. GDP came in at +1.4%, disappointing consensus (+2.8%) on a headline basis, but exhibiting encouraging fundamental momentum beneath the surface, driven by tech capex and consumer services spending.
See below for details, but on net we view these developments as quite consistent with our Regime Change framework for a higher rate of deficits and nominal growth. The tariff overturn does not affect our outlook for the Fed (two more cuts in 2026). However, we are slightly trimming our CPI forecast to +2.6% this year (from +2.7%) and +2.3% next year (from +2.4%), reflecting marginally lower core goods inflation due to Section 122 “Balance of Payments” tariffs being set at 10%, versus our prior assumption of 15%. Meanwhile, we are modestly upgrading our 2026e U.S. GDP forecast to +2.5% from +2.3%, reflecting the ongoing strength we are seeing across tech related capex and consumer services spending.
