New employment report delivers insight into results of Donald Trump tariffs and DOGE layoffs
Washington D.C.: President Donald Trump’s tariffs are projected to push the US unemployment rate higher this year, though widespread job losses are not anticipated, according to a new analysis by Allianz economists.
In a report, Allianz noted that the labor market has remained resilient despite economic challenges, with indicators suggesting stability through mid-2025. “The job vacancy rate will be the first to signal a recession [expected in Q2-Q3], but we do not expect large layoffs,” the economists stated. They attributed this to labor shortages and restrictive immigration policies, which may lead companies to retain workers even in a downturn.
While tariffs and policy uncertainty could fuel inflation, Allianz does not foresee major layoffs, citing strong corporate profits and persistent labor scarcity. However, they predict unemployment will rise, peaking at 5% by early 2026 — up from March’s 4.2% rate.
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Meanwhile, federal workforce reductions under the Department of Government Efficiency (DOGE) are progressing, with agencies like the Department of Education and USAID implementing layoffs and buyouts. Legal challenges have delayed some dismissals, but Allianz expects these cuts to have minimal impact on overall unemployment. Even if 200,000 federal jobs are eliminated — over 10% of annual employment gains — the unemployment rate would rise by only 0.3 percentage points in 2025.
The report also highlighted market reactions to Trump’s tariffs, including initial moves toward safe-haven assets like Treasuries and the dollar. However, as the inflationary effects became clearer, investors shifted away, anticipating delayed Fed rate cuts. Rising yields and a weaker dollar suggest foreign divestment from US assets, possibly favoring European markets.
Allianz expects gradual labor market softening and a summer inflation spike from tariffs, prompting the Fed to cut rates in late 2025 or early 2026 to support employment.