Economists have expressed fears that the American economy may be on a path toward recession, or at least an economic downturn which could rival those of 2020 and 2008.
These concerns have been heightened by falling retail sales and associated layoffs, the anticipated impacts of President Trump’s tariffs on prices and domestic consumption, American stock indexes trailing their European counterparts in recent months, the Federal Reserve’s statements indicating that inflationary struggles are far from over, and data pointing to sharp declines in consumer confidence.
Why It Matters
In addition to the substantial effects on the economy itself, including high unemployment, reduced household incomes, increased government borrowing, and business closures, a recession could also hold major political repercussions for the incumbent administration.
Donald Trump’s path to the White House was paved with promises of lowering costs for American consumers on “day one,” as well as sparking a revival for domestic business. An economic downturn could affect the approval of his administration and influence his party’s chances in the 2026 Congressional elections.
What Do Experts Think?
David Wessel, senior fellow in Economic Studies and director of the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution told Newsweek:
“The U.S. economy has a lot of momentum and I don’t see any signs that the U.S. has entered a recession, but I do wonder if we are at an inflection point.
“My major concern is that the on-again/off-again tariffs, the ripple effects of the ham-fisted DOGE-led personnel policies, the challenges to long-held norms and institutions, policy-making by Musk tweets or Trump Truth Social posts is creating uncertainty and anxiety that could lead businesses and maybe even investors to say, well, I think I’m going to wait and see,” Wessel said.
This uncertainty, he warned, could lead many to defer investments or “hunker down,” leading to knock-on impacts for economic growth.
He cited the muted performance of the U.S. stock market as an early warning sign—the S&P 500 having dropped back to pre-election levels, a trend seen with the Nasdaq Composite and the Dow Jones Industrial Average.
“I’m also wondering if inflation is stuck above the Fed’s 2 percent target and that all this tariff talk is raising inflation expectations,” Wessel added. “If so, the Fed will be increasingly reluctant to cut interest rates.”
Jesse Rothstein, professor of Public Policy and Economics at the University of California, Berkeley and former chief economist at the US Department of Labor, on Bluesky:
“It seems almost unavoidable at this point that we are headed for a deep, deep recession,” professor Rothstein wrote in a Bluesky thread last week.
Rothstein said his concerns were based on the large number of federal workforce layoffs and contract cancellations enacted by the Department of Government Efficiency (DOGE).
From March onwards, Rothstein believes these will feed into weak nonfarm payrolls reports, the monthly measure of employment in the U.S. released by the Department of Labor.
Besides the direct impact of DOGE’s efforts on federal government employment, he said that this could contribute to “enormous private market uncertainty,” as well as a decline in government productivity.
Kenneth Rogoff, professor of Economics at Harvard University and former Chief Economist at the International Monetary Fund (IMF), told Newsweek:
“The thing that probably has the markets most spooked is the sharp decline in consumer confidence, especially as consumption spending was the only thing holding up fourth quarter GDP growth which was otherwise tepid.”
According to the latest report from The Conference Board, a non-profit business research organization, the Consumer Confidence Index declined by 7.0 points in February to 98.3, the largest monthly decline since August 2021.
In addition, the Expectations Index—which weighs consumers’ short-term outlook for income, business, and labor market conditions—dropped 9.3 points to 72.9, below the 80-point threshold which the Conference Board said “usually signals a recession ahead.”
Rogoff said it might be premature to say that a recession is just around the corner, but told Newsweek: “A recession during the second half of Trump’s term is more likely than not.
“Near term, the odds of a recession before the end of the year have gone up but they are still at most 25 percent,” he added.
On whether these fears can be attributed to the Trump administration, Rogoff said that, at the very least, these have resulted in economic concerns for those who didn’t vote for Trump in November.
“Almost half of all American consumers voted against Trump, and a great many of them seem convinced that his policies will lead to catastrophe. The forceful early rollout of policy changes terrifies these consumers. So without reassurance of some stability, it would be little wonder to see them cutting back on purchases. Trump may need only 51 percent of Americans as voters, but the other 49 percent also have a big impact on the economy.”
What Happens Next?
Barring any major shocks—such as a pandemic—the likelihood of recession in America’s immediate future remains relatively low, according to analysts. J.P. Morgan puts this probability at just 20 percent, only 10 percentage points higher than the constant 10 percent chance of a recession occurring at any time within the next 12 months.
However, some have highlighted early warning signs, like the decline in discretionary spending in the Bureau of Economic Analysis’ most recent consumer spending report, suggesting that Americans are bracing for potential economic challenges.
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