The Peterson Institute for International Economics (PIIE), a nonpartisan think tank based in Washington, D.C., projected on Tuesday that the U.S. economic growth is likely to stall this year amid policy uncertainty.

"Basically, it's a story about a solid foundation giving way to stalled economic growth and higher inflation" due to policy shifts, said Karen Dynan, nonresident senior fellow at the PIIE, who led the forecast for the think tank's semiannual Global Economic Prospects.

Dynan, a professor of the practice in the Harvard University economics department, said at an event Tuesday that year-on-year U.S. GDP growth is projected to be 1.1 percent in 2025 and 0.6 percent in 2026. She noted that U.S. GDP growth in the fourth quarter of 2025 is expected to be 0.1 percent, compared to the same quarter of the previous year.

Personal Consumption Expenditures (PCE) inflation in the fourth quarter is projected to reach 4.0 percent year over year, before dropping to 3.2 percent in the fourth quarter of 2026, according to the newly released Global Economic Prospects.

In the United States, tariffs will raise prices, reduce real incomes, disrupt supply, and impede decisions, and a drastic reduction in immigration will slow growth in U.S. potential output and demand, Dynan said.

She also argued that the Department of Government Efficiency (DOGE), led by Elon Musk, is not reducing government spending much and is not increasing efficiency. The direct savings from laying off workers is "relatively small," and "operational disruptions" are reducing efficiency in the near term, she noted, adding that cuts in research and development will lower productivity and output in the longer run.

Dynan estimated the odds of a U.S. recession at 40 percent, noting that major downside risks exist due to potential developments in the United States. She highlighted that economic weakness could be amplified by a larger stock market decline, a loss of confidence in U.S. fiscal management, and renewed monetary tightening if inflation expectations become unanchored.

The Federal Reserve is expected to hold interest rates steady through year-end, waiting for clearer signs that inflation is easing before making cuts, she said.

Globally, "under the assumption that the tariffs currently announced by the Trump administration are mostly kept in place - and some retaliation occurs - many countries will experience significantly slower growth in coming quarters than expected six months ago," Dynan said.

Real global GDP is now projected to increase by just 2.7 percent in 2025 and 2.8 percent in 2026, down from a 3.2 percent gain last year, according to the projection.

Adam Posen, president of the PIIE, put U.S. recession risk at 65 percent, and highlighted U.S. policy uncertainty.

"What we are undergoing is a fundamental shift in the regime of U.S. economic policy, and by regime, I mean it in the political economy sense, the ongoing set of norms, institutions, practices that define a situation," Posen told the audience.

"The bottom line is, we may get recessions, we may not, but you're going to get inflation either way," said Posen.