A recession in the United States is looking increasingly likely as economists, market strategists, and former top officials sound the alarm over President Donald Trump’s sweeping new tariffs, warning of widespread job losses, declining household incomes, and a prolonged economic slowdown.
Former US Treasury Secretary Lawrence Summers, who served under President Bill Clinton, said Tuesday it is “more likely than not” that the latest round of tariffs will plunge the US into a recession. Speaking to Bloomberg, Summers predicted the downturn would push an additional 2 million Americans out of work — a 28% rise from the 7.1 million already unemployed as of March — and slash annual household incomes by over US$5,000.
Summers’ warning joins a growing chorus from major financial institutions. Goldman Sachs has raised its recession probability over the next year to 45%, up from 20% in late March, citing the cumulative damage of the tariffs and the lack of signs that Trump will reverse course. JPMorgan Chase, the largest US bank, delivered an even starker message in a Friday note, placing recession odds at 60% and calling the tariffs the “largest tax increase” since 1968, falling hardest on consumers.
Bear market, battered confidence
Wall Street has responded with a steep and sustained sell-off. The S&P 500 index officially entered bear market territory on Monday, falling more than 20% from its recent highs. An estimated US$10 trillion in market value has been wiped out, with high-growth sectors such as tech leading the downturn. Nvidia and Tesla were among the hardest hit.
Though equity markets are not perfect indicators of the real economy, they are clearly pricing in a sharp slowdown. “Markets are still pricing nowhere close to the worst-case scenario,” said Bhanu Baweja, chief strategist at UBS, on Monday. But signs of stress are emerging across asset classes. Treasury yields have fallen more than 30 basis points in two months as investors seek safety, while gold has surged over 10% this year to hit a record US$3,000 per troy ounce.
Consumer and business sentiment cracking
Confidence among consumers is weakening. The Conference Board’s latest index showed sentiment at its lowest point since 2021, while retail sales in February grew just 0.2% month-on-month, far below forecasts. Meanwhile, business investment is softening, weighed down by tariff uncertainty and fears of retaliatory measures.
“The uncertainty is reaching a fever pitch,” wrote Morningstar economists in a recent note. They estimate a 40–50% chance of a US recession within the next year and have already slashed real GDP growth projections by 0.7 percentage points for 2025 and 0.9 points for 2026.
The UCLA Anderson School of Management issued a formal “Recession Watch” for the first time in its 73-year history, warning that Trump’s aggressive trade and deregulation agenda — including the dismantling of federal agencies under Elon Musk’s Department of Government Efficiency — could “very well be the author of a deep recession.”
Fed walking a tightrope
While the bond market’s most widely watched recession indicator — the inverted yield curve — has recently normalised, the Federal Reserve is under growing pressure. According to Morningstar, market expectations now imply five interest rate cuts by the end of 2026, up from three a month ago. Goldman Sachs expects the Fed to hold off on cuts until tariff policy becomes clearer.
“If tariffs are more recessionary than inflationary, the Fed could act sooner,” said Goldman chief economist David Mericle. “But if inflation surges due to tariffs and stimulus, the Fed might delay action.”
Morningstar forecasts the federal funds rate falling to 3.50%–3.75% by the end of 2025 and eventually reaching 2.25%–2.50% in 2027, unless stagflationary pressures take hold.
Trump prepared Americans for downturn
In a March 9 Fox News interview, Trump foreshadowed the possibility of a recession, calling it a necessary “transition” phase. Treasury Secretary Scott Bessent echoed those remarks, telling Meet the Press that the economy is entering a “detox period.” “Be Strong, Courageous, and Patient, and GREATNESS will be the result!” Trump wrote on Truth Social Monday.
The White House maintains that the tariffs — which have driven the average US rate to 25.5%, the highest in more than a century — are a means to rebalance trade, revive American manufacturing, and punish what it calls unfair practices by trading partners.
Trump’s advisors have floated the idea of using tariff revenue for tax cuts, which could offset some demand-side damage. But economists say the long-run efficiency losses from protectionism would persist even with such stimulus. “Unless pared back or phased in gradually,” wrote UCLA’s Clement Bohr, “this is a self-inflicted economic catastrophe.”
Unemployment still steady—for now
Despite signs of cooling in the labour market, unemployment remains relatively low at 4.2%. The Sahm Rule — a statistical recession indicator based on joblessness — is not yet flashing red.
Global investors retreat
In a March survey, Bank of America found 63% of global fund managers expect the global economy to weaken in the next year — the second-largest jump in pessimism in the poll’s history. Cash allocations surged to their highest levels since the COVID crash in March 2020, and exposure to US equities dropped at a record pace. The top concern cited by respondents was a global recession triggered by a tariff-driven trade war.
What happens next
The Atlanta Fed’s real-time GDPNow model estimates the US economy contracted at a -1.8% annual rate in Q1 2025, though the figure is subject to revision and may be skewed by short-term anomalies such as gold imports.
Still, the consensus is shifting: a recession is no longer a fringe possibility, but a real and rising risk.
