Consensus estimates of recession probability have risen to 30 percent, which is the same level reached in October 2024 and significantly below the 65 percent probability expected in April 2023. Furthermore, recession probability in the United States, according to Bloomberg, is currently the same as in the euro area. Deloitte and Coutts predict continued GDP growth in 2025, and the Federal Reserve states that the economy is expected to grow at around 1.8 percent this year.
Not all is positive, because the Conference Board Consumer Confidence Index fell sharply in March 2025, dropping to 92.9, its lowest level in over four years, but still far away from the levels seen in previous severe downturns, 87.1 during the pandemic and 26.9 in the 2008 crisis.
What are the main concerns from investors? Cutting spending and tariffs. However, reducing government spending is essential to reduce inflation and slash the deficit. In 2024, government spending rose by 10 percent, a completely abnormal figure that elevated the federal deficit to almost $2 trillion, leaving the U.S. economy with the worst GDP growth adjusted for debt accumulation since the 1930s.
This unsustainable spending and indebtedness path was leading America to a debt and inflation crisis. Inflation was caused by elevated government spending leading to exceedingly high money supply growth and destruction of the purchasing power of the US dollar. The MIT concluded that federal spending was responsible for the 2022 spike in inflation and subsequent increases in government outlays and money supply growth perpetuated the inflationary pressures and created an unsustainable debt problem, with interest expenses rising to close to $1 trillion. With this trend, the U.S. debt to GDP would rise from an alarming current 122.3 percent to 156 percent by 2055, according to the Congressional Budget Office. Thus, cutting government spending is essential to reduce inflation and avoid a debt crisis. A slowdown of GDP growth coming from a reduction in government spending is not a negative, but a signal of strengthening of the productive economy.
Tariffs are a global concern. However, most investors seemed to be blissfully unaware of the enormous trade barriers and tariffs implemented by the European Union or China in recent years. Market participants seemed perfectly happy with rising tariffs and trade barriers against the United States from other nations. In the Trade Barrier Index, India, Russia, South Africa, Brazil, and China appear as the worst countries in terms of barriers to trade. Furthermore, the European Union and China impose higher tariffs against the United States rather than the other way round, according to ING and Bank of America. In addition, markets reached all-time highs with former President Joe Biden maintaining and increasing some of the tariffs that existed when he took office.
Markets may be spooked by tariffs, spending cuts, and inflation concerns because those may mean less money supply and fewer rate cuts. However, tariffs are a negotiation tool aimed at improving the trade balance. Eliminating barriers and negotiating better terms is positive for all markets. Furthermore, the history of trade negotiations and the use of tariffs has proven to have a much smaller impact on the U.S. economy than initially feared. The 2016–2019 period also proves that.
The U.S. economy is significantly more dynamic and powerful than many believe. Supply side spending cuts and debt reduction, tax cuts, and balancing trade are not negatives for the economy. They are all essential tools to recover real wages, financial strength, and a thriving productive sector. Short term-pain for long-term gain.