Last year, during his election campaign, Donald Trump gave glowing projections of a fresh era of wealth for Americans. But after Trump’s first two months in office, he is now saying that challenges economically await his constituents. Trump is now suggesting a brave new world, cautioning that “reducing prices is not going to be easy,” and that there would be a need to prepare for a “a little disturbance” before the country returns to prosperity. Although there are signs of easing inflation, Trump’s other policies bring renewed fears of economic stagnation. The overarching question remains however: Is Trump set to throw the largest economy in the world into recession?
The term “recession” in America refers to a widespread and protracted contraction in economic activity, usually accompanied by low employment levels and a slumping economy. These days many analysts seem to continue to sound claxon alarms around the fences of these predictions by admitting that the challenges emerging out of the coverage risks seems to be having an impact.
The likelihood of a recession occuring this year has risen from 30 percent to 40 percent, according to a report published by JP Morgan, which now considers policy to be “tilting away from growth.” Mark Zandi of Moody’s Analytic increased the odds as well, citing tariffs as the reason for raising the estimation from 15 percent to 35 percent. These estimates correlate to the deepest point of the S&P 500 (a measure of the 500 largest corporations in America) which has hit an all time low since September, which indicates increasing doubts regarding the health of the economy.
The market’s volatility is partially aggravated by fears of new Trump tariffs that he placed during his transition into presidency. These tariffs focus on imports from America’s top three trading partners while also warning broader actions that analysts believe will take a toll on economic expansion and drive prices up. Although inflation rates reported by the government showed a decelerating growth rate on expenses in February—2.8% versus January’s 3%—this March, Trump and his aides went public telling people to get ready to face the music, downplaying the markets’ worries. This change in rhetoric suggests a departure from his first term when he seemed to celebrate stock market performance as a main achievement, arguing there ‘will always be changes and adjustments’ that happen. Last week, in responding to business requests for more clarity, he answered more aggressively which increased uncertainty about his future economic policies. Recently, Goldman Sachs raised its forecasted chance of a recession from 15% to 20%, citing changes in policy as “the key risk” to the economy. The firm remarked that if risk conditions turned out to be more severe, the White House may need to change its direction, but there is a warning that clinging to policies would heighten an already critical recession danger.
Uncertainty around tariffs remains a concern for many businesses as the levies increase taxes on imports. Many firms are currently witnessing their profit margins getting squeezed, which is forcing them to delay hiring and investment decisions as they make sense of the economic landscape. Investors are also worried about the impending cuts to government employment and spending. These were initially thought to be threats aimed at using them as a carrot by Trump. “But what the President and his cabinet are signaling is actually a bigger deal. It is a restructuring of the American economy,” he described. “And that is what has been moving the markets these last couple of weeks.” says Stifel’s Gardner.
The U.S. was already experiencing some economic slowdown. This was largely driven by the central bank’s monetary policy which aimed to preserve increased inflation by maintaining the interest rates and cooling the economy. The recent data suggests this weakening is happening at a much greater pace. A lot of consumer spending, for instance, retail sales declined in February, and also consumer and business confidence was up just after the election then suddenly dropped. A number of large firms including airlines and retailers such as Walmart and Target have issued warnings regarding an impending slowdown.
The economic downturn and the stock market decline have already negatively affected to the investments and spending, especially from the upper-class families. This can pose a serious challenge to the economy, which is increasingly consuming-centric and depends on consumer expenditure, specifically during the times when inflation is making it tough for families within the lower class, to manage these expenses.
During a recent speech, Jerome Powell, who leads the American central bank, assured people that despite the prevailing levels of ambiguity, America still has a solid economy. On the other hand, Kathleen Brooks from XTB, sounded skeptical when she said that everything is riding on marketed relations. “The fact that tariffs could disrupt that at the same time that there were signs that the US economy was weakening anyway… is really fueling recession fears,” she remarked.
Investor apprehension in the stock market is not singularly linked to the policies of Trump. Even before the politically-induced instability, there was already anxiety about a market correction after the considerable growth in a span of two years which was driven by an optimistic view of technology stocks and AI. For example, the share price of chipmaker Nvidia increased from below $15 dollars to almost $150 dollars within the margin of one year between 2022 and 2023. This steep incline in share value has led to discussions with regards to the existence of an ‘AI bubble’ where investors are trying to protect themselves from the stock market crashing regardless of the economic state of the country. As the economic outlook of America worsens, retaining optimism for AI is more difficult. Recently, tech analyst Gene Munster from Deepwater has expressed his views on AI stating that his optimism has ‘taken a step back’ as the chances of a recession happening has measurably increased within this past month. “In a recession, fulfilling the predictions surrounding AI technology becomes almost impossible,” he said.
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