US Recession Fears Intensify as Economists Predict 50% Likelihood

Economists are increasingly warning that the US economy faces a near 50% chance of slipping into a recession in 2025, driven by President Donald Trump’s trade policies and their ripple effects. J.P. Morgan’s chief economist, Bruce Kasman, has raised the recession risk to 40%, up from 30% at the start of the year, and warned that the odds could exceed 50% if Trump’s proposed reciprocal tariffs take effect in April. Former Treasury Secretary Larry Summers echoed this sentiment, stating that the probability of a recession is now “near 50%,” citing tariffs, immigration crackdowns, and mass federal layoffs as key factors undermining consumer and business confidence.

Trade Wars and Economic Uncertainty
The escalating trade tensions, particularly Trump’s threats to impose reciprocal tariffs on key trading partners like China, Mexico, and Canada, are fueling economic uncertainty. Moody’s Analytics chief economist Mark Zandi has raised his recession odds to 35%, up from 15% earlier this year, warning that prolonged tariffs could push the economy into a downturn. Surveys reveal that both consumers and businesses are growing increasingly pessimistic, with executives in traditionally pro-Trump states reporting collapsing business conditions.

Consumer Sentiment and Market Volatility
Consumer sentiment has declined for three consecutive months, with inflation expectations spiking to their highest levels in recent years. Wall Street has also been rattled, with the S&P 500 entering correction territory and other major indexes like the Nasdaq and Russell 2000 following suit. Goldman Sachs and Morgan Stanley have slashed their US GDP growth forecasts to 1.7% and 1.5%, respectively, reflecting growing concerns about the economic outlook.

Mixed Economic Indicators
While some indicators, such as the New York Federal Reserve’s model, suggest healthy economic growth in Q1 2025, others, like the Atlanta Fed’s nowcast, point to a potential contraction. The yield curve has also inverted in certain segments, a historically reliable predictor of recessions. Despite these mixed signals, the prediction market Kalshi estimates a 40% chance of a recession in 2025, up sharply in recent weeks.

AIgnite Opinion
The mounting recession fears underscore the fragility of the US economy in the face of policy-driven uncertainty. While some indicators remain positive, the combination of trade wars, declining consumer sentiment, and market volatility paints a concerning picture. Policymakers must address these challenges promptly to restore confidence and avert a potential downturn.

Key Takeaways

• Economists now estimate a 40%-50% chance of a US recession in 2025.
• Trump’s trade policies, including reciprocal tariffs, are a major driver of economic uncertainty.
• Consumer sentiment has declined for three consecutive months, with inflation expectations rising.
• Major banks like Goldman Sachs and Morgan Stanley have downgraded US GDP growth forecasts.
• Mixed economic indicators, including yield curve inversions, are fueling recession fears.