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Investing.com -- Despite a de-escalation in U.S.-China trade tensions, Barclays analysts maintain that U.S. economic growth will slow in the coming quarters, even as recession risks diminish.

“Although we still think that U.S. activity growth is poised to slow in coming quarters, our baseline no longer features a mild H2 2025 recession,” Barclays wrote in a new research note.

The reassessment follows a recent agreement that sharply reduced tariffs between the world’s two largest economies.

Barclays estimates the overall trade-weighted tariff rate has dropped to about 14%, or 17% excluding a temporary electronics exemption.

As a result, the bank now expects less upward pressure on inflation. “We expect the lower tariff rate to imply diminished cost-push inflationary pressures over the medium term,” the analysts said.

Barclays lowered its 2025 forecast for core PCE inflation to 3.3% year-over-year in the fourth quarter, down from 3.8%. For 2026, the bank sees inflation falling closer to the Federal Reserve’s 2% target, at 2.2% Q4/Q4.

The stronger economic outlook also prompted an upward revision to the unemployment forecast. Barclays now expects the jobless rate to peak at 4.3% in the fourth quarter of 2025, compared to a steeper rise previously anticipated.

The improved economic trajectory means fewer interest rate cuts, according to the bank. “We now expect the FOMC to deliver just one 25bp cut this year, in December, with the economy sidestepping a recession, the unemployment rate little changed, and inflationary pressures less pronounced.”

Meanwhile, for Europe, following the U.S.-China tariff de-escalation, the bank’s de-escalation target of 540 for the Stoxx 600 is now its base case.

“While near-term fundamental upside seems limited, we think equities can overshoot, as positioning both at the broader equity market level and at the sector level has lagged the bullish price action,” wrote Barclays.

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