The world is staring at a global recession starting with America. Trump’s tariffs are posing a risk to the US economy, but he appears less bothered by a recession if growth slows. Fed Chair Jerome Powell has already predicted that new tariffs will have a larger economic impact than anticipated, leading to slower growth and higher inflation.
Trump tariffs are in effect today, but only at a 10% base rate. The reciprocal tariffs have been paused till at least July 9 after Trump stopped the implementation from April 9, giving 90 days for most countries to negotiate.
However, the US-China trade war is on as China has resorted to retaliatory tariffs. The US and China’s negotiations are crucial for easing tensions, as failure could lead to a significant economic downturn in all major economies of the world. In a trade war, there’s no winner.
So, what are the top voices in the world of finance, the economists, the top hedge fund managers, saying about the looming risk of recession?
Torsten Slok, Apollo Chief Economist is of the view that if current policies do not change, then the probability of a US recession in 2025 is 90%. Slok believes that tariffs have been implemented in a way that has not been effective, and there is now a 90% chance of what can be called a Voluntary Trade Reset Recession.
“But implementing extremely high tariffs overnight hurts many businesses, particularly small businesses, because the tariff must be paid by the business when the imported goods arrive in the US. Expect ships to sit offshore, orders to be canceled, and well-run generational retailers to file for bankruptcy,” says Slok. If the current level of tariffs continues, a sharp slowdown in the US economy is coming, warns Slok.
JP Morgan’s recession prediction has undoubtedly rocked financial markets, as CEO Jamie Dimon recently forecast a 50% possibility of a U.S. recession by 2025.
The prediction is troubling, considering the present market volatility caused by Trump’s trade tariffs and ongoing inflation concerns.
In his letter to shareholders, Dimon wrote that the recent tariffs will likely increase inflation and are causing many to consider a greater probability of a recession. And even with the recent decline in market values, prices remain relatively high. These significant and somewhat unprecedented forces cause us to remain very cautious.
Meanwhile, Nouriel Roubini has a new warning for Wall Street: traders should hedge their bets that the Federal Reserve will increase interest-rate cuts to offset the effects of President Donald Trump’s trade war. This time, the economist, who rose to notoriety for correctly forecasting the 2008 financial crisis, believes the US economy will avoid a recession while the Fed keeps interest rates constant for the rest of the year as tariff-related policy debates de-escalate.
Ray Dalio, founder of Bridgewater Associates, expressed concern about a potential recession if not handled well, stating that the company is at a decision-making point and close to a recession.
Moody’s Analytics Mark Zandi predicts the US could face a recession within three to four weeks due to high policy uncertainty and hopes that the Trump administration find an exit strategy and the trade war de-escalates.
Former Treasury Secretary Lawrence Summers thinks that the Trump tariff might result in the loss of 2 million American jobs.
However, Treasury Secretary Scott Bessent is of the view that Trump’s sweeping levies were necessary and pushed back at warnings of a recession. “I see no reason that we have to price in a recession,” he said.
Allianz’s Chief Economic Advisor, Mohamed El-Erian, has a warning message for the markets. “You’ve had a major repricing of growth prospects, with a recession in the U.S. going up to 50% probability, you’ve seen an increase in inflation expectations, up to 3.5%,” he told CNBC’s Silvia Amaro on the sidelines of the Ambrosetti Forum in Cernobbio, Italy.
El-Erian said he believed the U.S. economy would expand by between 1% and 1.5% this year, noting that this represented a “significant change in the growth outlook” when compared with the IMF’s projection of 2.7% U.S. growth made earlier this year.
Following Trump’s tariff halt, Goldman Sachs economists stated Wednesday afternoon that a recession is no longer the base case.
“We are reverting to our previous non-recession baseline forecast with GDP growth of 0.5% and a 45% probability of recession,” Goldman Sachs researchers wrote in a report. Approximately an hour ago, the same researchers predicted a 1% GDP loss this year and a 65% chance that the economy will enter a recession during the next twelve months.
The IMF has made significant adjustments to its global economic growth forecasts due to trade disruptions. Bank of America’s CEO Brian Moynihan predicts no recession this year, but other major banks like Morgan Stanley and JPMorgan Chase suggest a 40% and 60% chance of a recession, respectively.
National Economic Council director Kevin Hassett predicts no recession in 2025, citing CEO discussions indicating tariff uncertainty won’t significantly impact the economy.
Whether or not the Trump tariffs and the US-China trade war cause a recession remains in question, but it will slow down growth.
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