The recent reports indicate that the refusal of President Donald Trump and his economic advisers to dismiss the possibility of a recession is unsettling both Wall Street and consumers. Economists warn that the current policies could inadvertently steer the economy towards an unnecessary downturn. The UCLA Anderson School of Management has introduced a new “Recession Watch,” signalling serious concerns about these economic strategies, which could lead to a significant recession if not moderated.
Economist Clement Bohr from UCLA cautions that if Trump’s aggressive economic measures, especially high tariffs and government efficiency initiatives led by Elon Musk, are not dialed back or implemented gradually, a recession could be prevented. He warns, “be careful what you wish for because, if all your wishes come true, you could very well be the author of a deep recession.”
Mark Zandi, chief economist at Moody’s Analytics, echoed similar sentiments during a CNN interview, indicating that recession risks are alarmingly high. While he believes that the odds of a recession are under 50%, he notes the outcome largely depends on presidential actions and choices.
Preparations for potential recession were made clear by Trump in an interview, warning of a period of economic “transition.” Treasury Secretary Scott Bessent also acknowledged the possibility of a recession, suggesting that a more cautious approach prior to the Great Recession could have yielded healthier economic conditions.
Currently, the definition of recession involves two consecutive quarters of negative GDP growth. However, the Atlanta Federal Reserve signals concern with predictions of -1.8% growth, potentially the worst since 2020, otherwise skewed by gold import methodology. Moreover, Wall Street remains cautious, with JPMorgan forecasting a weak 1% growth, while Goldman Sachs has increased recession probabilities.
As fears of an economic slowdown escalate, stock prices have plummeted, particularly impacting vulnerable sectors. The S&P 500 dropped into a 10% correction, erasing approximately $5 trillion in market value and demonstrating investor concern regarding the imminent downturn.
A recent Bank of America survey highlights rising global economic pessimism, with most fund managers anticipating a weakening economy. There is a marked shift towards cash and away from U.S. stocks, with cited risks including trade wars and tariff unpredictability stemming from the White House policies.
In the bond market, signs of increased demand for safer investments are evident as Treasury yields have decreased, although the yield curve remains normalized. The New York Fed’s recession model now indicates only a 27% chance of recession within the next year, a notable decline from previous predictions.
Consumer confidence has also waned, with sentiment dropping to its lowest since 2022, reflecting concerns over economic sustainability. Despite headwinds, the unemployment rate stands at a solid 4.1%, indicating strength in the labour market amid warnings.
Investments in gold and oil markets point towards apprehension about a global recession, with gold prices surging and Brent Crude prices declining, illustrating expectations of reduced oil demand. Attention is now focused on interest rates, with both Trump and Bessent signalling intentions to lower them to stimulate economic growth, but market indicators suggest minimal chances of immediate action from the Fed pending clearer tariff policies.
A crucial insight shared by Lydia Boussour of EY-Parthenon best encapsulates current sentiments: “Cracks are forming in the economy’s foundation.” Although an outright decline in consumer spending is not anticipated, rising recession risks continue to loom overhead.
Economists warn that President Trump’s policies could inadvertently lead the U.S. to a recession, with indications from the UCLA Anderson School highlighting the seriousness of this risk. Current economic data suggest instability, reflected in stock market trends and consumer confidence. While the labour market remains strong, concerns about impending recession continue to grow, emphasising the need for careful economic strategies.
In summary, the potential for a recession is an ever-present concern, with prominent economists warning that current economic policies could be steering the U.S. towards unnecessary economic turmoil. Though recession indicators remain mixed, with consumer confidence declining and stock market volatility increasing, the labour market remains robust. Close monitoring of interest rate policies and market indicators will be crucial in the coming months to gauge the economy’s health.
Original Source: www.forbes.com
