Recession fears persist amid inflation and trade wars
President Donald Trump did not rule out the possibility of a recession in a recent Fox News interview, amid his administration’s continuing trade war.
- The U.S. economy may be heading toward a recession due to recent economic policies and global uncertainty.
- A recession is characterized by a decline in economic activity, including a drop in GDP, increased unemployment, and reduced consumer spending.
- Experts suggest preparing for a potential recession by building an emergency fund, reducing debt, and diversifying investments.
Are we heading for a recession?
On Monday, U.S. stocks plunged. The Dow dropped 890 points and the tech-heavy Nasdaq and broad S&P 500 posted their biggest one-day drop in over two years, largely in response to President Donald Trump’s interview released the day before on Fox’s “Sunday Morning Futures” when he wouldn’t say whether the United States might face a recession this year.
“I hate to predict things like that,” he told Fox host Maria Bartiromo. “There is a period of transition because what we’re doing is very big.”
The slide continued Tuesday after Trump escalated his trade war with Canada by pledging to double his planned steel and aluminum tariffs after the province of Ontario said it would charge U.S. customers more for electricity in retaliation for Trump’s previous tariff threats.
In just over one month in office, the Trump administration has fired great swaths of federal workers around the country, cut billions in funding to U.S. aid programs and scientific research programs, and threatened unpredictable on-again-off-again tariffs on goods from Mexico, Canada and China that will raise prices for Americans, especially on groceries.
While Trump and his advisers have been steadfast in promising it will all lead to a stronger economy, these moves can have devastating effects on the economy, along with consumer and investor confidence.
Trump has dismissed concerns over the stock market tumble of the last week.
“You can’t really watch the stock market,” he said Sunday. But after campaigning on lowering prices on day one, in recent weeks — including during his address to Congress last week — he has warned the country to get ready for a “little disturbance” from potential trade wars.
What does that mean?
Trump won’t rule out recession as US tariffs begin
President Trump refused to rule out the possibility that his economic policies, including aggressive tariffs, could lead to a recession. In an interview with Fox News, he acknowledged a “period of transition” but insisted that his policies would ultimately benefit the economy.
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What is a recession in economics?
The definition is a little fuzzy, and recessions are often not declared until they’ve already been going on for some time.
According to the National Bureau of Economic Research, a recession in the U.S. is “a significant decline in economic activity that is spread across the economy and that lasts more than a few months.” The nonprofit bureau’s Business Cycle Dating Committee is the official designator of business cycles.
To be a recession, the economic situation has to hit three criteria — depth, diffusion, and duration — but extreme conditions in one can offset weaker conditions in another. The committee looks at:
- Real personal income, less transfers (PILT)
- Nonfarm payroll employment
- Real personal consumption expenditures
- Manufacturing and trade sales adjusted for price changes
- Employment as measured by a household survey
- Industrial production
But those indicators can get into the weeds and become very technical.
An unofficial definition of a recession many experts use as a rule of thumb is when the gross national product (GDP) drops two financial quarters in a row.
A country’s GDP is the total market value of all the goods and services produced and rendered in a specific time period, and is often an indicator of the country’s economic performance.
Is the US going into a recession?
Last week, the Federal Reserve Bank of Atlanta posted preliminary economic data showing a drop of 2.4 percent for the GDP in the first quarter of 2025, the first time we’ve seen a quarterly drop since 2022 during the pandemic.
That doesn’t necessarily mean we’re moving into a recession. There are other reasons the GDP might slip in an otherwise strong economy, such as earlier this year when consumers and companies were bringing in imports at a higher rate in anticipation of higher prices from Trump’s threats of tariffs.
“There isn’t necessarily a reason to be extremely concerned about an imminent recession, because we’re coming out of two very strong years of growth,” Gregory Daco, chief economist at EY Parthenon, told CNN Monday, “an environment where income growth was strong, where productivity growth was strong, where consumer spending growth is strong and, really, where the economy overall was quite strong.”
But uncertainty about what tariffs will do is causing the stock market to be more volatile than usual, which also affects anyone with a 401(k) retirement plan.
There is also concern Social Security is on the chopping block, with the world’s richest man and presidential adviser Elon Musk calling it a “Ponzi scheme” and Trump claiming unsubstantiated “shocking levels of incompetence and probable fraud.” With rumored cuts coming to Medicare and Medicaid, Americans may start keeping the money they have left to themselves.
If the trend continues, a recession is possible.
How does being in a recession affect me?
Indications of a recession often include:
- Higher prices, which contribute to a drop in consumer spending
- Declines in manufacturing and production due to rising material costs and a drop in consumer spending
- Drop in business investment as companies seek to save their money, which can lead to higher prices and drops in consumer spending
- Unemployment due to layoffs from lack of sales
- Stalled wages as employers freeze paychecks and bonuses
Do interest rates go down in a recession?
The Federal Reserve isn’t lowering interest rates yet, but economists believe there will be multiple reductions in June, July and October due to a slowed economy from Trump’s trade, fiscal, immigration and regulatory policies.
That could mean it will be a great time to buy a house, but it may also come at a time of income instability to keep paying for it.
What’s the difference between a recession and a depression?
A recession is a downward trend in the business cycle characterized by a decline in production, sales and employment. Recessions are common and can be very quick or last months or years. The U.S. saw drops after the collapse of the housing market in 2008 and during the first months of the pandemic shutdown in 2020, and the country recovered. But sometimes they spiral out of control and lead to a depression.
A depression is far worse. A depression is a widespread, extreme recession that lasts longer and causes generational damage to the economy. The last one in the U.S., the Great Depression of the 1930s, saw the stock market crash, banks failing, and thousands of Americans out of work for over a decade.
How will tariffs affect the US economy?
When a reporter on Air Force One asked Trump Monday evening if he was worried about a recession, the president said, “Who knows?
“All I know is this: We’re going to take in hundreds of billions of dollars in tariffs, and we’re going to become so rich, you’re not going to know where to spend all that money. I’m telling you, you just watch. We’re going to have jobs. We’re going to have open factories. It’s going to be great.”
Trump has repeatedly stated that the other countries would pay for the tariffs, although economists describe them as taxes on foreign imports that drive up prices at the register since affected companies pass any additional costs to the consumer.
“For consumers, tariffs are like another form of inflation, just spelled differently,” said Darpan Seth, CEO of Nextuple, which helps build and support programs to help its clients get products for consumers in stores or online. “They have the same effect of rising prices.”
Countries that have had tariffs imposed on them also may choose to retaliate with tariffs on American goods and services, further harming American businesses.
How can I protect myself from a recession?
The hardest part of a recession is uncertainty about your financial situation, now and in the future. Investopedia.com suggests the following tips to get through a recession:
- Have an emergency fund: If it’s an option for you, keep cash handy or in a high-interest, FDIC-insured account and build up a nest egg. You may also want to start paying attention to any preventative medical care you can get now or any early vehicle or home repairs you can have done. By the time they’re a problem, they will cost a lot more.
- Live within your means: Check your budget and adjust it to avoid running up credit card bills or other debt. If you are a two-income family, see how close you can get to living off just one person’s income to both help you save money quickly and to be ready if one of you becomes unemployed.
- Find extra income: More jobs means more job security and the more streams of income you have the less you’ll be affected if one or more dry up.
- Invest for the long term: If you don’t plan to sell your current stocks, a temporary recession won’t affect you since the market will eventually rise again. If you have the means, it might even be a good time to buy more as prices fall. But make sure as you reach retirement age that you have enough money in liquid, low-risk investments to retire on time.
- Diversify your investments: If your money is in different places, you run less of a risk of losing it all. Try to build a portfolio of investments that aren’t related, so that when one is up the other is down, and vice versa.
- Keep your credit score high: Pay your bills on time, keep your oldest credit cards open and keep your ratio of debt to available credit low and keep your credit score up. When credit markets tighten, people with excellent credit will have the best chances to get approved. If times get tough, talk to your creditors and work out payment plans to keep your accounts in good standing.
(This story was updated with new information.)
