Forbes Recession Watch: Tariffs Loom as Odds of Economic Downturn Surge Before Trump's 'Liberation Day'
Topline
Multiple economists have cautioned that the Trump administration might inadvertently drive the U.S. into an avoidable recession, given President Donald Trump and his chief economic advisors' approaches. refuse to rule out A downturn, shaking both Wall Street and consumers—and the statistics provided below can assist in assessing just how near the economy might be to reaching a critical juncture.
Key Facts
Goldman Sachs economists hiked They revised the likelihood of a recession occurring within the coming year from 20% to 35%, issuing a gloomy update to clients on Sunday. This came with increased projections for both inflation and joblessness, alongside reduced expectations for economic expansion. Economists at JPMorgan hold an even bleaker outlook, estimating a 40% chance of a downturn.
The UCLA Anderson Graduate School of Management published earlier this month, an official "Economic Downturn Alert" was initiated first time in its 73 years of economic forecasts, as economist Clement Bohr issued a scathing assessment of Trump’s economic policies, writing the Recession Watch “serves as a warning to the current administration: be careful what you wish for because, if all your wishes come true, you could very well be the author of a deep recession.”
A recession could be "completely avoided" if Trump's key economic strategies, such as imposing the harshest tariffs in almost 100 years and significantly reducing government activities under Elon Musk’s Department of Government Efficiency (DOGE), are either scaled down or implemented incrementally, claims Bohr.
Moody's Analytics' lead economist, Mark Zandi, echoed a comparable sentiment in his statement from March 19. interview On CNN’s “Early Start with Rahel Solomon,” stating that it "seems as though we’re being driven into a recession" by Trump.
The risk of a recession remains uncomfortably high and is increasing," warned Zandi, further stating that he thinks the chances of a recession are "below 50%, though this largely depends on the actions taken by the president.
The Trump Administration Readies Americans for Potential Economic Downturn
Trump prepared Americans for the possibility of a potential recession during an appearance on Fox News. interview On March 9, he expressed uncertainty about avoiding a recession, warning Americans about an upcoming phase of economic "adjustment" as his policies begin to implement. He also mentioned that he pays minimal heed to fluctuations in the stock market. During later interviews, Treasury Secretary Scott Bessent likewise refrained from ruling out the chance of a downturn and stated that the country will experience a necessary “period of detoxification." told In an interview aired on NBC’s “Meet the Press” over the weekend, he stated that it "would have been more beneficial if someone had intervened" prior to the Great Recession.
Contra
The probability of a recession "has increased but remains low," according to Jerome Powell, chairman of the Federal Reserve and the top monetary policymaker, who addressed journalists on Wednesday, thereby easing concerns amid a series of gloomy economic reports.
What Really Sets Off a Reccession? (It Hasn’t Occurred—Yet)
The formal description of a recession involves two successive three-month periods showing a decline in the nation’s gross domestic product, which is an extensive indicator of every good and service generated within a country. Although the official quarterly GDP figures have not shown a downturn yet, the Atlanta Federal Reserve's real-time model raised worries starting February 28 by predicting a negative gross domestic product growth rate for the first quarter of 2025. According to forecasts from the Atlanta Federal Reserve, this could result in an annual GDP growth rate of -1.4% during Q1, marking one of the lowest readings since 2020, despite potential increases due to higher gold imports. CNBC A survey of economists calls for a modestly positive GDP growth rate of 0.3%.
Stock Market Indicates Concerns About Slowing Down
Share values do not always align perfectly with economic expansion; however, stock market participants are evidently factoring in higher chances of an economic downturn in the U.S. This sentiment is reflected in the performance of the S&P 500. dove into a 10% decline earlier this month, erasing some $5 trillion in terms of market value within less than a month’s time, led by Shares seen as the most exposed to an economic downturn, such as AI favorite Nvidia and Elon Musk’sTesla, have been flagged.
High-Stakes Financial Advisers Voice Major Worries Over Expansion
The latest monthly report from Bank of America’s survey of global fund managers, published this month, indicated that around 63% of these key investors anticipate a weakening of the global economy within the coming year. This marked an increase so significant that March now ranks as the period showing the second-largest rise in overall economic pessimism since the start of the poll back in 1994. According to the findings, fund managers shifted towards holding more cash than they have since March 2020, and rapidly reduced their holdings of U.S. stocks—a move indicating declining confidence in American equity markets. Fund managers overwhelmingly pointed out White House policies as the primary concern; specifically, 55% mentioned the potential for a trade conflict sparked by tariffs leading to a worldwide downturn, whereas 13% identified initiatives stemming from Elon Musk’s Department of Government Efficiency as posing the greatest danger to causing a domestic recession. Conducted between March 7th and 13th, the Bank of America study involved 205 international fund managers responsible for managing approximately $477 billion worth of investments.
The Bond Market Is Uncertain—But the Yield Curve Remains Unchanged
In other areas of financial markets, investors turning towards government bonds indicates a desire for more secure returns amid concerns about an impending economic downturn. yields For Benchmark 10-Year Treasury Bonds, there has been a decline of over 25 basis points in the last two months (decreased yields indicate that these bonds have become more valuable). However, the most typical bond market indicator of an upcoming recession is still not evident. inversion The phenomenon where longer-term bonds exhibit lower yields compared to shorter-maturity ones has indeed normalized In recent months, the New York Fed’s bond-based recession indicator predicts only 27% The likelihood of a recession occurring within the coming year has decreased from over 70% during late 2023, when such concerns did not result in an actual economic downturn.
U.S. Consumers Show Signs of Preparing for Difficult Times Ahead
One of the most troubling indicators recently has been the erosion of ordinary Americans' faith in the economy, as reflected in the Conference Board’s widely monitored consumer confidence index. tumbled this month to its lowest level since 2021. That tracks with weaker spending, as February retail sales grew by just 0.2% from January to February, according to a report released On March 17, the Census Bureau reported a much steeper decline than the 0.6% monthly growth anticipated by experts.
The Unemployment Rate Remains Good
A key characteristic of the U.S. economy is labor market has begun to show signs of weakness in early 2025 with slower job growth and an increase in layoffs; however, it still stands robust overall, considering February’s unemployment rate was at 4.1%, which falls comfortably within historically normal levels. An important signal for potential economic downturns known as the Sahm rule, flashes a significantly reduced chance of a recession compared to what it was when it reached its peak last summer. inspiring A brief market downturn in August.
Gold and Oil Prices Suggest Possible Global Economic Downturn
Dealing with two of the globe's most valuable resources definitely suggests the possibility of an impending worldwide economic downturn. Gold prices have risen over 10% this year to an all-time high of $3,100 per troy ounce due to investors pouring into the traditional safe-haven asset, whereas the price for global reference Brent Crude fell this month to its lowest level since 2021 as traders braced for a potential global weakening in oil demand as economic activity slows.
What To Watch For
Bessent and Trump have made their positions clear that they are lasered in When it comes to reducing interest rates, these are set by the financially autonomous Federal Reserve. Such reductions usually occur mainly when there is significant economic turmoil, since decreased rates generally encourage economic expansion—households and companies tend to take out more loans because borrowing costs decrease. However, this increase in lending activities might also result in heightened inflation due to increased demand. According to David Mericle, who serves as Goldman Sachs' top U.S. economist, the Fed will probably wait before making additional rate cuts "until trade policies become more defined."
Crucial Quote
"Fractures are appearing in the bedrock of the economy," Lydia Boussour, a senior economist at EY-Parthenon, stated in written remarks sent via email on Monday. "Although we do not expect a decline in consumer expenditure, the chances of a downturn are increasing," she further explained.
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