Last year before Donald Trump was elected, he was campaigning by telling voters of how America could become great again with a new spark of life. But now, about two months into his presidency, he has seemingly changed his narrative into saying that slashing prices and bringing wealth to the American civilization again is going to take some time, and he hopes to bring in a “little disturbance” in the interim period. The bottom line is that his policies could drive the economy into shambles. So the question arises, is Trump on the edge of pulling the Largest Economy in the world into a recession?
In America, a recession is defined as when an economy undergoes contraction over an extended period of time measured by joblessness and lower wages. Recently, there has been economic analysis claiming how this scenario is being more and more likely. Nonetheless, JP Morgan increased the probability of a recession these days to 40% from the 30% it had been at the start of the year which shows there is American policy that is not “moving away from growth.” Also, Mark Zandi chief economist of Moody’s Analytics raised the odds from 15percent to 35percent because this is all due to the impact of tariffs.
That the S&P 500 which is the benchmark for 500 major companies in the US, dropping simultaneously, signals a troubling forecast and feeds into the ever-increasing fear regarding recession.
The inability to maintain a consistent economic stability is due to the new tariffs set by Trump on the countries with which trade is done on a principle basis. Foe Trump’s suggestion, many analysts are in agreement that these tariffs will stifle the economy. During a time of economic chaos, him and his advisors continuously seem to disregard the market volatility, telling the public to mentally brace themselves for hardship. Unlike during his first tenure when he used stock market performance to indicate success, Trump claimed during a speech last week that “adjustments will always be necessary”. There is notothing more frightening for astute businessmen to hear this since it implies he plans on making significant economic changes. The American multinational investment bank recently raised its prediction of the recession metaphorically from 15% to 20%. They cited the lack of government policy changes as a “key risk” to stability. The company stated that this level of recession risk could be achieved if the administration does not change its hostile approach towards negative economic indicators.
Perplexities regarding tariffs is a challenge that many businesses share since it is in direct correlation with operational expenses. Many companies are currently unwilling to invest or hire given that profits are funding costs, regardless of how business progresses. Furthermore, there are fears among investors in regard to cuts in government employment and spending. As noted by Gardner, businesses thought Trump’s tariffs were simply for show. Regardless, markets have changed their expectations of the stimulus package due to signs from the government needing more surgery on the American economy. The U.S. economy was already experiencing an ease in growth, in part due to the stubborn interest manifold set forth by the bank and its goal to help stabilize prices and cool economic activities.
In fact, now there is plenty of information that suggests an economy thinning faster. Retail sales have decreased in February, consumers and businesses are no longer spending as much or are as optimistic in comparison to the post election period, and large companies such as airlines, Walmart, and Target are giving out their red flags of a turn down. Some experts suggest that falling stock prices could dampen spending for upper middle- class households which will lead to profoundly hurting an economy that relies heavily on the spending of consumers.
US central bank chair Jerome Powell undertook to assure the populace last week stating that sentiment has not been a reasonable predictor of economic action in the past few years. “Even with a great deal of uncertainty, the US is still functioning well economically,” said Powell. However, Brooks Kathleen, a research director at XTB, issued a warning that America’s economy is fundamentally intertwined with the rest of the world’s economy. The possible disruption due to tariffs coupled with pre-existing economic weaknesses is what is driving fear towards the possibility of a recession.
The existing apprehension present in the stock market has deep roots and can be linked to Trump’s policies as well. Investors were bracing themselves up for a possible correction during the rolling wave of excessive gains over the last two years. Specifically, in the tech sector, where the stocks’ prices are highly optimistic due to the advent of artificial intelligence. Take for example the chip manufacturer, where Nvidia’s share price saw an astronomical rise from under $15 at the start of 2023 to nearly $150 at the November same year. This surge has sparked rampant discussions over an “AI bubble” which has people on edge because of a potential burst that could have dire consequences for the market irrespective of the economic scenario. As the economic forecast for the US continues to worsen, maintaining enthusiasm about AI will be more and more difficult. Deepwater Asset Management Tech analyst, Gene Munster, recently said he has “taken a step back” in his AI optimism since a recession has “measurably” increased over the last month. “The bottom line is that if we enter into a recession, the AI trade is nearly doomed,” he explained.
North America correspondent Anthony Zurcher has a weekly newsletter titled ‘US Politics Unspun’ where he provides specialized coverage on the latest developments in Trump’s second presidential term. Readers in the UK can subscribe here, while those outside the UK can sign up here.
