For the past year, U.S. economic policymakers have been singularly focused on achieving a so-called soft landing that brings inflation down without a recession. Now, a new team of pilots are considering a course correction that, by their own acknowledgment, might tip the economy toward a hard landing.
President Trump and his senior advisers in recent days have signaled indifference to rising risks that trade uncertainty chills private-sector investment. They have argued a “detox” might be needed in spending and hiring, that falling stock values aren’t a big worry, and that inflation could rise in the short run.
In an interview that aired Sunday on Fox News, Trump sidestepped a question about whether a recession could lie ahead. “There is a period of transition because what we’re doing is very big,” he said. “What I have to do is build a strong country. You can’t really watch the stock market.”
Given a chance to explain those comments later Sunday, Trump instead doubled down in remarks to reporters on Air Force One that evening. “Tariffs are going to be the greatest thing we’ve ever done as a country. It’s going to make our country rich again,” he said.
The comments roiled stock markets on Monday. The Dow Jones Industrial Average fell 890 points, down 2.1%. The S&P 500 fell 2.7%, while the tech-heavy Nasdaq fell 4%, its largest decline since 2022. All three major indexes are now below their levels recorded on Election Day last November.
Delta Air Lines said domestic demand had softened when it slashed its first-quarter earnings and revenue guidance after markets closed on Monday. The company saw a “pretty significant shift” in sentiment in February, and “consumer spending started to stall,” said Chief Executive Ed Bastian on CNBC.
Business travel has also softened. “Where there are places where people just aren’t quite sure what’s going to happen, companies are pulling back,” he said.
In recent days, advisers including Commerce Secretary Howard Lutnick have warned tariffs could create a one-time increase in prices. Treasury Secretary Scott Bessent suggested the U.S. economy may need a reset following years of growth supported by federal spending and rising asset prices. “We’ll see whether there’s pain,” he said Friday on CNBC.
To be sure, Trump inherited an economy with steady growth and lofty stock markets but vulnerabilities from a frozen housing sector and a cooling labor market. Investors began the year indifferent to those blemishes because they expected the new administration to focus on revving up growth. Stocks soared after Trump’s election in November as investors anticipated a bullish cocktail of tax cuts and deregulation, as occurred in his first year as president in 2017.
“People could only see the good side of what Trump was promising to do. That has basically evaporated, and now, we’re back to recession watch,” said Dario Perkins, an economist at GlobalData TS Lombard in London.
Analysts saw the shift in tone from the president and his advisers in recent days as particularly portentous. The administration initially seemed to focus on talking down the risks of higher government bond yields from an uptick in inflation or by pre-emptively blaming the departing Biden administration for any growth scare.
“On Friday, I would have said I thought the administration was worried about their policies really slowing down the economy, and they were trying to lay the groundwork for the narrative that they inherited a weakening economy,” said Michael Strain, head of economic-policy studies at the right-leaning American Enterprise Institute.
More recent comments seem to have gone beyond that.
“Now, there’s almost a sense that if something goes wrong in the economy, then that’s fine,” said Perkins. “That’s making people quite nervous because if you get to the point where you are pushing the economy into a recession, there is no guarantee that that’s just going to pass quickly.”
Market economies tend to settle into their own equilibrium. An increase in spending and hiring sustains still more spending and hiring until some outside event—a war, oil price shock, or large increase in borrowing costs—knocks the economy off track, creating a negative feedback loop.
Economists at JPMorgan Chase said Monday that the risk of a recession had edged up to 40% from 30% owing to “extreme U.S. policies.” Goldman Sachs, which has consistently anticipated above-consensus growth in recent years, now says it expects weaker growth than the rest of Wall Street. Its economists raised their 12-month recession odds to 20% from 15%.
“We still think this is more of a growth scare than a recession,” said George Mateyo, chief investment officer at Key Private Bank. “This is very much a man-made situation.”
The administration has taken Washington and Wall Street by surprise in recent weeks with a double-barreled blitz to slash the federal workforce and to threaten huge tariffs on its largest trading partners. Trump has already imposed large tariff increases on China, hitting a range of goods such as consumer electronics and apparel that received exemptions six years ago.
“The administration seems to be trying to test the boundaries of the economy’s willingness to tolerate rising tariffs. And it doesn’t quite know where those boundaries are,” said Strain.
Difficulty forecasting potential changes to prices of imported goods means investment spending could “totally stall out in the first quarter,” he said.
Risks abound. For example, efforts to shrink the federal workforce without a sustained rise in joblessness could rely on the private sector to absorb those workers. But are private-sector businesses prepared to do so when they don’t know by what magnitude tariffs on goods and materials that they import are set to rise? The Trump administration, in running multiple policy experiments at once, risks upending a fragile “slow-to-hire, slow-to-fire” equilibrium that has defined the postpandemic economy.
Strain said he was worried about the effects on consumer spending from anxious workers—those directly employed by the federal government and millions more whose businesses rely on federal funding or contracts—pulling back on purchases. Harvard University announced a hiring freeze on Monday.
To be sure, the U.S. government has managed meaningful fiscal cutbacks in the past. The federal workforce shrunk by more than 10% between 1992 and 1998. But a steadily growing economy enabled that to occur without any meaningful disruption.
In November, the share of households who expected their financial situation would improve over the coming year reached a 4½-year high, according to a New York Fed survey of consumers. The same survey, released Monday, showed the largest monthly drop in household financial sentiment last month since 2023. Expectations regarding the perceived probability of missing a debt payment rose to the highest level since April 2020.
Some analysts cautioned that Trump’s messaging may instead reflect a strategic effort to improve the country’s bargaining posture with trading partners and to jawbone bond investors and the Federal Reserve to maintain a bias toward lowering rates. Already, Trump’s impulsive trade and security behavior has prompted authorities in China and Europe to take steps to increase spending on economic stimulus and defense.
Analysts said the past two weeks had been helpful in resetting expectations on Wall Street by showing Trump wasn’t likely to change course based on a market selloff. “He is telling us, in everything he is doing, that he is not kidding around. On tariffs, he believes it in his bones,” said Andy Laperriere, head of U.S. policy research at Piper Sandler.
Laperriere referred to an anecdote recounted in Bob Woodward’s 2018 book about how Trump’s economic team worked behind the scenes to sand off the rough edges of his more belligerent trade posture. “There is no Gary Cohn to throw the Peter Navarro memo in the trash can. The people who are there are resigned to the fact that he’s going to do what he wants on tariffs,” he said.
Business executives have said they would be more comfortable with larger-than-anticipated tariffs if they could at least have certainty about the administration’s ultimate plans.
In the interview Sunday, Trump pooh-poohed that desire for clarity by suggesting that “tariffs could go up as time goes by.” Pressed that his answer did little to resolve businesses’ anxieties, Trump responded by attacking multinational companies: “For years, the big globalists have been ripping off the United States.”
Laperriere said investors were right to worry that policies could veer toward chaos rather than moderation if growth does suffer. “Instead of a weak economy forcing Trump to reconsider his policy agenda, it’s far more likely to cause Trump to consider other policies that are disruptive to the economy,” such as a more aggressive effort to challenge the Fed to cut interest rates, he said.
Because tariffs are likely to send up prices at least in the short run, officials at the Fed are likely to move more slowly to cushion the economy from potential threats to growth than they were last year, when interest rates were higher and inflation was steadily declining.
“You can’t be sure that the monetary policy response is going to be forthcoming quickly enough to break that potential feedback loop. That’s the worry here,” said Perkins.
