Is a US Recession Inevitable?

Published 07/04/2025, 15:15

A rising chorus of forecasts suggests as much. But for the moment, this is still guesswork as markets struggle to price in a dramatically altered macro outlook due to the rising risk of a global trade war.

In a letter to shareholders published today, JP Morgan CEO Jamie Dimon suggests that an economic downturn isn’t yet baked in. “Whether or not the menu of tariffs causes a recession remains in question, but it will slow down growth.”

That view constitutes the leading edge of optimism, such as it is. But elsewhere, the negative skew is conspicuous. Goldman Sachs, for example, warns: “If most of the April 9 tariffs do take effect, then the effective tariff rate will rise by an estimated 20pp once those increases and likely sectoral tariffs take effect, even allowing for some country-specific agreements at a later date. If so, we expect to change our forecast to a recession.”

The Kalshi betting market this morning is pricing in a 67% probability of recession, up from around 25% in late-February.Recession Probability

On the plus side, President Trump says he’s willing negotiate. On Sunday evening he said he’s “open to talking” with world leaders on new trade deals. “I’m willing to deal with China, but they have to solve their surplus,” he said aboard Air Force One. But he also advised that the tariffs will continue until the US trade deficit is eliminated: “Unless we solve that problem, I’m not going to make a deal.”

Perhaps there’s still a window of opportunity. The hard data published to date continue to reflect a clear positive skew to US economic activity. March payrolls posted a strong rebound in March: Hiring increased 228,000 last month, up sharply from February’s revised 117,000 gain.

Another sign that there’s still a tailwind blowing: the Dallas Fed’s Weekly Economic Index reports that US economic activity was growing at a 2%-plus pace through Apr. 3.Weekly Economic Index-2019-Present

The problem, of course, is that a new world order is lurking via the threat of a global trade war. Data published to date is ancient history. The acid test is how the comparisons stack up for the post-“Liberation Day” period.

On that front, Trump appears to hold all the cards. The key risk that’s weighing on the outlook is that it’s unclear how or when he’s going to play his hand.

The macro trend, in short, could go either way, but the clock is ticking. Exactly when we cross the recession Rubicon is open for debate, but this much is clear: the longer the tariffs threat resonates, and persuades governments to implement tariffs, the higher the odds that Jamie Dimon’s thin sliver of optimism about recession dwindles into the ether.

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