Anna Wong, Chief US economist for Bloomberg Economics, and Kathryn Holston, Economist at Evercore ISI Research, delve into the looming question of a Trump recession. They dissect the economic shifts caused by government layoffs, tariffs, and trade policy uncertainty, moving from initial growth expectations to concerns over contraction. The duo explores the implications of tariffs on inflation and how policy uncertainty affects job growth. With insights drawn from their impressive backgrounds, they provide a thought-provoking analysis of today's economic landscape.
The proposed tariffs could significantly elevate core PCE inflation and negatively impact payroll employment growth, raising recession concerns.
Current economic uncertainty is at unprecedented levels, leading to reduced consumer spending and hesitance among businesses to hire.
Deep dives
Impact of Tariffs on Inflation and Employment
The discussion highlights the potential repercussions of proposed tariffs, particularly a 25% tariff on Canada, Mexico, and a 20% tariff on China. Experts predict that these tariffs could lead to a significant rise in core PCE inflation, estimated to be around 50 basis points in 2025 and an additional 20 basis points in 2026. Additionally, there is concern that these tariff increases could negatively affect payroll employment growth by around 70,000 jobs in the near term. The combination of direct tariff impacts and heightened trade policy uncertainty poses a substantial challenge to the U.S. economy's growth.
Economic Uncertainty and Its Ripple Effects
A notable theme discussed is the overwhelming level of economic uncertainty, which currently stands 11 standard deviations above historical norms, contributing to a gloomy economic outlook. This uncertainty, spurred by both trade policies and governmental actions, has led to reduced consumer spending and increased hesitation among businesses to hire. The experts suggest that as uncertainty persists, small businesses heavily reliant on federal contracts may face significant employment impacts, with estimates indicating the potential loss of 200,000 federal jobs. Government actions are affecting private sector payrolls as firms anticipate declines in federal contracts, potentially exacerbating the economic slowdown.
Evaluating Future Economic Conditions
The conversation surrounds the likelihood of the U.S. entering a recession or experiencing stagflation due to the aggressive tariff policies implemented. While some economists believe that current growth conditions could mitigate a recession, they emphasize that the potential for a downturn exists if tariffs remain in place for an extended period. Analysts explore how these tariffs might have a long-lasting detrimental effect on trade relationships and supply chains. The conclusion is that the economic impacts of current policies may provoke a significant slowdown, but the strength of previous economic fundamentals offers grounds for cautious optimism.
Instead of the “Trump bump” we were talking about at the beginning of the year, a combination of mass terminations across the federal government (many of which may be illegal), sweeping tariffs and a whole lot of uncertainty could be leading to a Trump slump. Or is it, as Treasury Secretary Scott Bessent reassured us this week, just a period of transition?
That’s the question we tackle on this episode of Trumponomics. Host Stephanie Flanders speaks with Evercore ISI’s Kathryn Holston, who served as a White House senior economist last year and before that in the office of the chief economist of the World Bank, and Anna Wong, chief US economist for Bloomberg Economics.