The smartest things economists are saying about a possible recession

Business Insider

01-05-2025

Is a US recession going to happen soon? Economists have varying opinions.
In the first quarter of this year, real US gross domestic product fell for the first time since 2022, partly due to a surge in imports as businesses prepped for tariffs from the Trump administration.
That doesn't mean there's a recession, and job growth and other measures don't indicate a downturn just yet. It could take a while to see strong evidence in hard data, and the US could even avoid a recession this year.
Consumer sentiment has tanked, and business optimism has dropped amid a jump in economic uncertainty. Some companies are pulling back on guidance.
Here's what economists have said about the chances of a recession coming soon and how it would affect Americans.
Claudia Sahm
"We're on a path toward a recession, but it is clear what can get us off that path and that would be less aggressive policies," Sahm, chief economist at New Century Advisors, told Business Insider.
Sahm said there has been some easing from the Trump administration, such as a 90-day pause on many tariffs.
"At the end of the day, it'll depend on what these policies are, but I don't think a recession is imminent," Sahm said.
Sahm said even if there isn't a recession in 2025, the economy is likely to slow, and people will have to get used to some adjustments, such as a tougher job market. If there is a recession, she said it would be "not a severe drop off a cliff type of recession."
Paul Krugman
Krugman, a Nobel Prize-winning economist and a CUNY Graduate Center professor, cautioned in a Substack post against reading too much into the latest GDP estimate.
"Remember, measured GDP shrank in the 1st quarter of 2022, and that didn't presage a recession — in fact, that was probably just statistical noise," Krugman said on Wednesday.
Despite that, he warned in a Substack on Tuesday about a "disastrous effect" from the trade war.
"Tariffs always raise prices," Krugman said. "But the sheer size and suddenness of Trump's tariffs, combined with the paralyzing effect of uncertainty about what comes next, are about to deliver a Covid-type supply shock to an economy already sliding into recession."
Torsten Sløk
Sløk, the chief economist at asset management firm Apollo Global Management, said in a post on April 19 that "tariffs have been implemented in a way that has not been effective, and there is now a 90% chance of what can be called a Voluntary Trade Reset Recession."
A chartbook from Apollo showed that this would mean a recession in the summer. But Sløk said it's not too late to avoid one. The US could form some kind of agreement with Mexico, Canada, China, and others.
"For Mexico and Canada, there is a unique opportunity for the US to move first and get an agreement where labor, capital, and natural resources can be efficiently used in the North American economy," Sløk said.
Olu Sonola
"For now, we don't have a recession in the cards," Sonola, head of US economic research at Fitch Ratings, told Business Insider. "That view is predicated on the assumption that tariff rates do not escalate further. A stagflationary shock is a more likely scenario with relatively weak growth and higher inflation; that risk has materially increased since April 2nd."
Diane Swonk
"We have a shallow recession starting in the second quarter and persisting through the fourth quarter," Swonk, chief economist at KPMG, told Business Insider. "The rebound is also weak, barring a major stimulus package, which could see backlash from the bond market."
Swonk sees some early recession indicators flashing red. "The drop in consumer attitudes is in recession territory," she said. "The deterioration in job security we are seeing is particularly worrisome."
Some Americans could be more affected by a recession than others.
"Inequality has worsened, with the top 10% of earners accounting for nearly half of all consumer spending," Swonk said. "Low- and middle-income households lack the cushion on savings triggered by COVID-era stimulus, which leaves them the most vulnerable to those losses."
Cory Stahle
Stahle, an economist at the Indeed Hiring Lab, said in commentary Tuesday after new job openings and turnover data that "fears of an impending recession have drowned out the calls for a soft landing. Since economic decisions are often shaped by expectations, it's possible that conditions may worsen in the coming months if people start behaving like they are in a recession. Softening some of the recent trade policy changes may ease some business concerns, but it may already be too late."
Eric Rosengren
Rosengren, former president of the Federal Reserve Bank of Boston and a visiting scholar at MIT, recently told Yahoo Finance there's a 50% or 60% chance of a recession, higher than earlier this year.
"Tariffs can both slow down growth, which causes higher unemployment, and they can also raise prices and potentially start affecting the underlying rate of inflation," he said.
Dana Peterson
Peterson, chief economist at The Conference Board, told Business Insider in mid-April that a recession isn't The Conference Board's base case, but the organization expects weakening growth, faster inflation, and increasing unemployment.
"The US actually is coming off of very strong fundamentals," Peterson said, adding that many people are working and there had been "sizable contributions from government spending on the industrial policies."
David Kelly
"The most likely scenario, at this stage is that, having lingered at the edge of recession, the economy slides into a shallow one later this year," Kelly, chief global strategist at J.P. Morgan Asset Management, said in a note on Monday.
However, a mild recession this year could spur the government to take action, and Kelly said it "could set the stage for moderate fiscal stimulus in 2026, which, while further worsening the deficit, should be enough to restart economic growth. The Administration would likely take note of the damage done by tariffs and extreme reductions in immigration and federal government employment and could soften these policies."
Desmond Lachman
Lachman, a senior fellow at the conservative-leaning think tank American Enterprise Institute, said in an op-ed on April 21 that there are many reasons to expect a US recession.
"Tariff policy-induced economic uncertainty now delays investment and consumer spending; a tax increase is hitting households in the form of higher prices; equity and bond prices are being pummeled by a loss of faith in American economic exceptionalism; and the upending of the rest of the world economy will certainly have spillover on the U.S. economy," Lachman said.
Mark Hamrick
Hamrick, a senior economic analyst at Bankrate, told Business Insider that there's a risk that a contraction continues, but it is not guaranteed.
"At issue is whether the consumer continues to power the economy and whether they'll have the wherewithal and desire to remain engaged as purchasers," Hamrick said. "With imports being sharply curbed and prices likely set to rise, their ability and desire to buy, not dissimilar from the supply chain disruption days of COVID, will be watched closely."
Hamrick said there's "a difference between the official declaration of a recession and how consumers can feel, as affirmed by the fact that many consumers have incorrectly associated their reduction in buying power in the face of elevated prices with a recession."