Trump Recession Risk: Top Economists Warn of Inflation and Economic Downturn

Top economists are sounding the alarm on the potential for a recession under Trump's leadership. A significant increase in inflation is a major concern, with some experts predicting a rise to 3% or higher.

The National Bureau of Economic Research defines a recession as a period of decline in economic activity, typically marked by a decline in gross domestic product (GDP). According to some economists, a decline in GDP is already underway, with a 2.9% drop in the first quarter of 2019.

A slowdown in consumer spending, which accounts for about 70% of the US economy, is also a major risk factor. With wages stagnant and debt levels rising, many Americans may be forced to cut back on discretionary spending.

The Federal Reserve has already taken steps to mitigate the risk of a recession, but some economists question their effectiveness.

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The US economy is currently in solid shape, with a historically low unemployment rate and inflation cooling down in March. The job market is also thriving, with hiring surging in March and beating economists' expectations.

Despite these positive indicators, the risk of a recession remains elevated. This is because the uncertainty created by Trump's tariff pause has already caused permanent disruption and damage, leading consumers and companies to pull back on big-ticket purchases.

The likelihood of a recession has eased slightly since the tariff pause, but experts warn that the economy is still vulnerable to a downturn. This self-perpetuating cycle of recession fears can have a lasting impact on consumer spending and business investment.

Oxford Economics predicts U.S. GDP growth at 1.4% and core inflation rising to 3.9% this year.

The ongoing trade war has increased the risk of near-term recession dramatically, according to PNC Financial Services economist Ershang Liang.

Nationwide's chief economist Kathy Bostjancic revises down their real GDP growth estimate to a range of zero –0.5% Q4/Q4 2025.

Capital Economics sees U.S. GDP growth slowing to around 1.5% annualized, with risks to the downside and a 30% chance of a recession.

Consider reading: Goldman Sachs Economist Jan Hatzius

Deutsche Bank's economics team believes these tariffs could shave 1-1.5 percentage points from growth this year and add a similar amount to core PCE inflation.

Recession risks will likely rise materially if these tariffs are sustained, according to Deutsche Bank's economics team.

The tariff hikes announced April 2, if maintained, represent a self-inflicted economic catastrophe for the U.S., says Morningstar's chief US economist Preston Caldwell.

We'll likely be reducing our U.S. real GDP growth forecast for 2025 and 2026, and the upward impact on inflation will likely be of a similar magnitude, says Morningstar's Preston Caldwell.

Worth a look: Axos Bank Trump

The Trump recession risk is a complex issue, and there are several other factors to consider. The US government's growing debt, which has increased by over $2 trillion since 2017, is a major concern.

The impact of trade wars on the economy is significant, with the US-China trade war alone resulting in over $50 billion in tariffs on goods. The uncertainty surrounding trade policies can also lead to reduced business investment and economic growth.

Related reading: Fed's Barkin Warns of Us Inflation Vulnerability amid Trump Policies

The strength of the labor market, which has seen unemployment rates remain low, is a positive sign, but it's also a sign of a potentially overheating economy. The low unemployment rate has been sustained by a strong job market, but it can also lead to inflation and wage stagnation.

The current state of consumer debt, which has increased by over $1 trillion since 2017, is another factor to consider. The average American household now owes over $140,000 in debt, which can make them more vulnerable to economic downturns.