Investing.com -- Wednesday saw the announcement of new tariffs, which, according to Bank of America strategist Thomas Thornton, matched "the worst-case scenario."

As of 11:47 ET (15:47 GMT), the S&P 500 was seen trading 215 points lower, or 3.8% lower. Nasdaq 100 was down about 5% while the Dow Jones Industrial Average sank 1330 points, or 3.1%.

The effective tariffs are expected to rise to 20%, although the team of analysts at BofA anticipates that negotiations will lead to the reduction of some tariffs as the Administration aims to secure country-specific agreements with nations other than China.

Should the tariffs persist at these levels, BofA’s team forecasts a 1-1.5% increase in U.S. inflation and a similar drag on GDP. This would put the economy "on the precipice of recession," Thornton added.

Inflationary pressures could complicate the Federal Reserve’s ability to implement rate cuts in 2025, whereas an economic slowdown might necessitate aggressive cuts in 2026.

The tariffs are also predicted to lower the global growth forecast by at least 50 basis points from the current expectation of 3.1%.

The bank’s U.S. Equity Strategy team estimates that the S&P earnings could see a reduction ranging from 5% to 35%, depending on the extent of retaliatory measures by trade partners.

With the announcement of the tariffs, some uncertainty has been lifted as the rates and implementation dates are now known, providing a basis for future negotiations.

The rates market is adjusting to the increased risk of stagflation and is pricing in more than 75 basis points of rate cuts for 2025, reflecting belief that the Fed will prioritize the downside risks to growth over the inflationary risks.

Thornton also said that the announcement of the tariffs coincided with the release of a Senate blueprint, which may not be coincidental. The tariffs could be viewed as a tool to generate revenue to counterbalance the larger deficits suggested by the blueprint.

However, if the blueprint is adopted, it could heighten concerns around U.S. debt sustainability, especially if tariffs lead to reduced demand for U.S. Treasury securities and dampen U.S. growth.