Uncertainty, Downturn, Consumer Reorientation, and the Looming Threat of Recession

Uncertainty and Downturn

The economy is looking increasingly precarious under President Trump, with federal cuts and tariff threats adding to worries about the job market and inflation. The S&P 500 benchmark plunged into correction territory this week, meaning it closed 10% below its most recent highs. This was its fourth negative week in a row, the first time since last summer.

Trump's tariffs strategy is a major factor in the economic downturn. He has allowed duties on steel and aluminum to come into effect, incurring retaliatory tariffs, and continues to threaten higher levies on Canadian goods and European champagne and wine imports. These tariffs are expected to generate substantial upward pressure for inflation in the future.

Consumers are undergoing a major reorientation of their outlook. They are uncertain about the future and worried about the impact of tariffs on prices. This is reflected in surveys such as the University of Michigan's year-ahead outlook business conditions, which fell to its lowest level ever.

The National Federation of Independent Businesses (NFIB) reported that its uncertainty index climbed to its second-highest recorded reading last month. Small business owners are expecting worse business conditions in the next six months and are less likely to view the current period as a good time to expand.

The White House is showing no sign of abandoning its tariffs strategy, while members of the administration are now actively preparing the electorate for a potential downturn. Commerce Secretary Howard Lutnick said this week that a recession would be "worth it" in order to get Trump's economic policies in place.

Treasury Secretary Scott Bessent warned that the economy needed to "detox" from its supposed reliance on public spending. Trump himself has said the economy is in "transition."

Some experts say that the recent decline in gas prices, egg prices, and mortgage rates are occurring against a backdrop of weakening overall demand and fears about economic growth. Consumers are beginning to process that this is not the economy they signed up for.

JP Morgan chief U.S. economist Michael Feroli lowered his estimate for U.S. growth for the year, while forecasting unemployment would now climb to as much as 4.4%. He said that heightened trade policy uncertainty should weigh on activity growth, particularly for capital spending. The tariffs Trump has imposed are set to "create a bump to headline inflation and a corresponding drag on consumer purchasing power," he said.