Trump’s on-again, off-again tariff threats against Canada, Mexico, China and others have left the US financial markets in turmoil and consumers unsure what the year might bring.
Stock markets just ended their worst week since the November election.
Measures of consumer confidence are down, as shoppers – already battered by years of inflation – brace for the higher prices that tariffs can bring.
And widespread government layoffs being engineered by Trump’s billionaire advisor Elon Musk add further concern.
When asked later Sunday to clarify his remarks on whether there could be a recession, Trump told reports on Air Force One “Who knows?”
Overall, the signs are mixed.
A widely watched Atlanta Federal Reserve index now predicts a 2.4 per cent contraction of real GDP growth in the year’s first quarter, which would be the worst result since the height of the COVID-19 pandemic.
Much of the uncertainty stems from Trump’s shifting tariff policy – effective dates have changed, as have the sectors being targeted – as businesses and investors try to puzzle out what will come next.
Kevin Hassett, Trump’s chief economic advisor, was asked on ABC whether tariffs were primarily temporary or might become permanent.
Hassett said that depended on the behaviour of the countries targeted. If they failed to respond positively, he said, the result could be a “new equilibrium” of continuing tariffs.
The administration has insisted that while the economy will pass through a possibly bumpy “transition,” things are headed in a positive direction.
In his State of the Union message on Tuesday, Trump told Americans to expect “a little disturbance” as tariffs take hold, while adding: “We’re okay with that. It won’t be much.”
And his Treasury Secretary Scott Bessent has warned of a “detox period” as the economy cuts government spending.
Given the uncertainties, economists have been wary of making firm predictions.
Economists at Goldman Sachs, citing Trump’s policies, have raised their odds of a recession over the next 12 months from 15 per cent to 20 per cent.
And Morgan Stanley predicted “softer growth this year” than earlier expected.
Recessions are generally defined as two consecutive quarters of weak or negative GDP growth.
The US was briefly in recession in early 2020 as the COVID-19 pandemic spread. Millions of people lost jobs.
