At the Milken Institute Global Conference in Los Angeles on May 5, Citigroup CEO Jane Fraser offered a balanced outlook on U.S. tariff policy’s economic impact. While stressing that many of Citi’s business clients can absorb modest tariffs of 10 %, she warned that escalating levies—particularly around 25 %—would likely stall investments and hiring and potentially undermine economic momentum.
Fraser highlighted that although clients are cushioning for moderate tariffs, they’re reluctant to commit to new capital projects or employee expansions amid heightened uncertainty. “Most companies are in a bit of limbo land,” she said, noting that decisions on capital expenditures and hiring have been suspended pending greater clarity, a shift that could dampen demand and slow economic growth. This sentiment aligns with broader concerns voiced by other Wall Street leaders. According to Reuters coverage, CEOs from Citi, Wells Fargo, JPMorgan, Goldman Sachs, and Morgan Stanley reported that while inflation and uncertainty are prompting pauses in capex and hiring, a resilient consumer base continues to support corporate earnings.
Businesses appear capable of absorbing a 10 % tariff without significant operational disruption. Fraser explained that these clients see 10 % as a “floor” and are prepared to manage those modest increases. However, at 25 %, the stress on pricing, supply chains, and overall corporate strategy becomes markedly more severe, with many organizations internally flagging that “not so much” could be absorbed. In broader context, tariffs at that level could exacerbate supply chain realignments, weighing on both short-term investment plans and long-term growth trajectories. Fraser cautioned that higher rates would force companies to reinforce their balance sheets and make structural adjustments—potentially tipping global trade norms toward more self-preserving behavior.
Fraser’s comments come at a pivotal moment: the U.S. economy recently contracted in Q1 2025 for the first time in three years—a decline attributed, in part, to businesses pulling ahead imports before tariff deadlines. The International Monetary Fund has forecasted a modest GDP growth of approximately 1.8 % for 2025. Despite this contraction and continued monetary tightening by the Federal Reserve, major U.S. banks, including Citi, have reported strong Q2 earnings. Trading desks have flourished amid volatility, and investment banking resumed momentum as markets regained stability. Yet, executives emphasize that this resilience depends heavily on keeping tariff escalation in check.
Citi has responded to the tariff landscape by broadening its lending footprint—particularly in private credit. Notably, it teamed with Apollo Global to support an $800 million facility related to Boeing, tapping into the $2 trillion annual private credit market. Meanwhile, Citigroup’s markets division posted $5.9 billion in revenue for Q2, up 16 % year‑on‑year, underscoring the bank’s ability to navigate turbulent conditions. CFO Vis Raghavan also noted that clients view tariffs between 10–20 % as within expectations, and banking fees and trading revenues should remain healthy in Q2 despite “tariff anxiety.”
Fraser’s message is concise: a 10 % tariff surge is manageable; a 25 % escalation, however, risks undermining corporate confidence, halting capital investment and hiring, and straining supply chains. Should tariffs climb higher, market turbulence could intensify, and forward guidance from businesses may pivot sharply. That said, Citi remains confident in its diversified model, even as economic policy uncertainties linger.
As negotiations unfold and tariffs remain a policy lever, Fraser’s insights offer a clear benchmark: up to 10 % tariffs are sustainable; beyond that, businesses may pull back—potentially sacrificing U.S. growth. With Q3 decision‑making on hold, corporate investment and labor markets may ultimately hinge on what trade policy looks like six months from now.
