Key Takeaways
- Economists are increasing their forecasts on the probability of a recession in the aftermath of President Donald Trump’s tariffs.
- However, most do not think it’s the most likely case yet.
- Tariffs alone will likely not tip the economy into a recession but if trading partners retaliate and consumers stop spending, a downturn could be ahead.
Economists are increasing their forecasts on the probability of a recession after President Donald Trump announced broad tariffs on trading partners last week.
However, that doesn’t mean that a recession is the most likely outcome yet.
Economists’ projections vary on how likely a recession is in the coming months. Before the tariffs were announced, the chances of a recession were low, many economists believed. Now that tariffs threaten to increase inflation and jeopardize economic growth, a recession has become more likely, but is not yet inevitable.
“There’s always an unconditional possibility of a recession. It might be broadly in the range of one in four at any time,” Federal Reserve Chair Jerome Powell said in a press conference after the last central bank policy meeting. “So the question is, whether, in this current situation, those possibilities are elevated.”
| Here’s How Likely Some Economists Think a Recession Is | ||
|---|---|---|
| Before Tariffs Announced | After Tariffs Announced | |
| Goldman Sachs | 35% | 45% |
| JPMorgan | 40% | 60% |
| Moody’s Analytics | 35% | 45% |
Not all Wall Street firms enumerate their recession forecasts, but that doesn’t mean they don’t think the likelihood is increasing.
“While a U.S. recession that drags much of the global economy down with it is not our base case, it is increasingly a realistic bear case,” forecasters at Morgan Stanely wrote.
Most economists agree that tariffs alone would not create a downturn. However, if other countries counter Trump’s import taxes and U.S. consumers slow their spending significantly, that could spell trouble.
“It remains to be seen how trade policy evolves from here, but to the extent the recent baseline and reciprocal tariffs stick, it looks increasingly unlikely that the U.S. economy will be able to skirt recession, especially if we see large retaliation from our trading partners,” Wells Fargo economists wrote.
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