Economists Warn of Recession Amid Tariff Surge

Economists Warn of Recession Amid Tariff Surge \ Newslooks \ Washington DC \ Mary Sidiqi \ Evening Edition \ President Donald Trump’s sweeping new tariffs have rattled financial markets and triggered warnings from top economists that the U.S. economy could slide into recession. Wall Street firms like Goldman Sachs and JPMorgan have increased their recession risk forecasts. Businesses now face rising costs and economic uncertainty as tariffs begin Wednesday.

Quick Looks

• Trump’s tariffs include a 10% duty on nearly all countries, with added import taxes on 60 nations
• Economists say the size and speed of implementation could disrupt global supply chains
• Goldman Sachs now sees a 45% chance of U.S. recession, up from 35%
• JPMorgan puts the risk even higher, at 60%, and expects inflation to hit 4.4% by year’s end
• Businesses may reduce hiring, investment, and expansion amid rising uncertainty
• Consumer spending could slow, shrinking the economy after 2.8% growth in 2024
• So far, job growth remains solid, but concern is mounting
• The Atlanta Fed’s real-time tracker now predicts a 0.8% contraction in Q1
• Wells Fargo estimates average U.S. tariffs will jump tenfold to 23%—highest since 1908
• Trump said the economy “needs medicine,” while Treasury says recession is avoidable

Deep Look

Trump’s Tariffs Spark Recession Concerns as Economists Raise Red Flags

The financial world is on edge following President Donald Trump’s sweeping tariff hikes, which have already sent U.S. stock markets tumbling and prompted a series of warnings from leading economists that the country may be on the verge of a recession.

Announced last week, the tariffs—set to take effect Wednesday—include a 10% blanket duty on nearly all imports, along with a set of additional taxes on goods from 60 specific countries. The suddenness and scale of the changes have raised fears across the business world and within the Federal Reserve that the economy could buckle under the pressure.

Recession Odds Rise Sharply

Economists at Goldman Sachs have revised their outlook, raising the odds of a U.S. recession to 45%, up from 35% just one week ago. Their projections assume that some of the duties will be reduced or removed through negotiations. If not, Goldman’s team, led by Chief Economist Jan Hatzius, warns that a recession forecast will be inevitable.

JPMorgan offered an even bleaker projection, placing the chance of recession at 60% and forecasting inflation to reach 4.4% by the end of 2025—up from the current 2.8%.

Other analysts are echoing these fears, warning that if the tariffs remain in place long-term, they could raise production costs, squeeze profits, and reduce business confidence, potentially leading to a slowdown in job creation and consumer spending.

Economic Signals: Mixed But Concerning

While key indicators such as employment data remain strong, underlying signs of strain are emerging. The Federal Reserve Bank of Atlanta’s GDPNow tracker—a widely watched real-time measure of economic activity—suggests the economy could shrink by 0.8% in Q1, a sharp drop from the 2.4% growth seen in late 2024.

Although not a formal forecast, the GDPNow tracker updates with each new economic release, and the latest dip is fueling market anxieties.

Meanwhile, Wells Fargo economists estimate that with all announced tariffs in place, the average U.S. duty will rise to 23%—the highest level since 1908.

“Such a change practically overnight will throw sand in the gears of global supply chains,” wrote Shannon Grein, Wells Fargo economist, comparing the disruption to the economic chaos of the pandemic and World War II.

White House Stands by Tariffs

Trump, responding to growing concerns on Sunday, told reporters,

“Sometimes you have to take medicine to fix something.”

Treasury Secretary Scott Bessent, however, offered a more measured tone, saying,

“There doesn’t have to be a recession,” and that the administration’s focus is on “building long-term prosperity.”

What Would Signal a Recession Has Begun?

Economists say the clearest sign of a recession would be a sustained rise in unemployment and job losses. So far, layoffs remain low, and March’s job report showed stronger-than-expected gains.

But some experts are watching alternative indicators for early signs of economic cooling. Torsten Slok, chief economist at Apollo, is tracking data such as bankruptcy filings, tourism, and entertainment activity. Among his findings:

• Bankruptcy claims are rising
• Travel to Las Vegas is slightly down
• Movie theater visits are below typical levels

These trends suggest a subtle shift in consumer behavior, often a precursor to larger economic slowdowns.

Beyond Tariffs: Other Recession Risks

Economists warn that it’s not just tariffs threatening growth. The Trump administration is also moving ahead with massive federal workforce reductions, particularly at agencies like the Department of Health and Human Services. These cuts, along with plans to slash government spending, could further suppress economic momentum.

Additionally, uncertainty surrounding the administration’s trade strategy may discourage long-term investment. Businesses may delay expansion or avoid building new factories if they’re unsure how long tariffs will remain in place.

There are also signs of international backlash. For instance, bookings for trips from Canada to the U.S. have dropped 70% in the next six months, according to airline data. While this impact is minor in the broader economic picture, Goldman Sachs estimates it could trim 0.2% off annual GDP.

Federal Reserve Caught Between Inflation and Growth

The Federal Reserve is in a tough spot. While many economists expect rate cuts starting in June, high inflation—already above the Fed’s 2% target—makes that a risky move.

If tariffs further boost prices, the Fed may be forced to hold rates steady or even hike, even as the economy weakens.

“They can’t really be proactive here because they do have inflation to worry about,” said Gennadiy Goldberg, head of U.S. rates strategy at TD Securities.
“What we’re looking at is a Fed that’s stuck between a rock and a hard place.”

Fed Chair Jerome Powell, speaking Friday, acknowledged that tariffs could fuel inflation. He emphasized that the central bank’s top priority remains price stability, suggesting the Fed will likely wait for more data before acting.

Who Decides When a Recession Has Officially Started?

The official declaration of a recession comes from the National Bureau of Economic Research (NBER), a nonpartisan committee of economists. They define a recession as a “significant decline in economic activity spread across the economy and lasting more than a few months.”

They weigh various data, including:

• Employment
• Consumer spending
• Income (adjusted for inflation)
• Retail sales
• Factory output

But NBER typically declares a recession well after it begins, sometimes taking up to a year to make the call.

Final Thoughts

Trump’s aggressive tariff agenda has rattled markets, businesses, and consumers alike, injecting economic uncertainty that many fear could tip the U.S. into its first recession since the pandemic. While official data still shows strength, warning signs are mounting—from slowing consumer behavior to downgraded forecasts from major financial institutions.

With inflation still elevated and the Fed reluctant to act too quickly, the economy may soon face the consequences of abrupt protectionist policies. Whether the U.S. can avoid a recession now depends on swift diplomatic maneuvering—and how long businesses can hold on before pulling back.

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