Despite the Trump Recession Being Off the Table, the U.S. Economy Isn't Out of the Woods Yet

President Trump’s recent decision to ease trade tensions with China has not only reignited a rally in the stock market but also temporarily reduced the likelihood of a U.S. recession. After months of tit-for-tat tariff increases that had rattled global markets, the U.S. and China struck a deal to suspend some of the steepest tariffs for 90 days, sparking relief among investors and a wave of optimism across Wall Street.

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This trade ceasefire helped lift major indexes, including the Dow Jones Industrial Average, the S&P 500, and the Nasdaq, which all closed higher following the announcement. More importantly, many economists now believe that the immediate threat of a recession has declined — at least for the time being.

“The risk of recession looks considerably lower than it did a month ago,” said Bill Adams, chief economist at Comerica Bank.

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However, while this temporary pause in trade hostilities is welcome news, economists caution that the road ahead remains uncertain. The broader economic landscape still faces serious challenges, and the threat of renewed trade conflicts is ever-present. President Trump could alter his approach, and without more durable agreements with China and other trading partners, progress could stall or reverse.

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Even with some recent tariff reductions, the overall level of tariffs remains higher than at any point in recent decades. Douglas Porter, chief economist at BMO Capital Markets, noted that “while the trade news is no doubt less awful, it’s still far from reassuring.”

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This prolonged uncertainty has already started to affect the behavior of businesses and consumers alike. Companies have become more cautious about investing and hiring, while household confidence has dipped. In recent months, both business and consumer sentiment have fallen sharply, contributing to slower economic activity.

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As a result, many economists expect U.S. economic growth to slow notably this year. Although fears of a near-term recession have abated, sluggish growth appears increasingly likely. The first quarter of 2025 already reflected this trend, marking the first quarterly decline in economic output since 2022.

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Tuan Nguyen, a U.S. economist at RSM, wrote in a note to clients: “While a recession is no longer our base case over the next 12 months due to the recent reduction in tariffs, the likelihood has increased that the U.S. economy will experience several quarters of sluggish growth.”

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According to a new survey by the Federal Reserve Bank of Philadelphia, U.S. GDP is expected to grow by just 1.4% in 2025. Excluding the pandemic years, this would represent the slowest pace of economic expansion in 16 years. The same survey had projected a much stronger 2.4% growth rate before the most recent flare-up in trade tensions.

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In contrast, the U.S. economy grew by 2.8% in 2024 and 2.9% in 2023, significantly above the economy’s estimated sustainable long-term growth rate. The anticipated slowdown could lead to rising unemployment and slightly higher inflation, driven in part by still-elevated tariffs.

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Despite the recent reprieve, the broader economic environment remains vulnerable. Many economists now see a 37% chance of a U.S. recession within the next 12 months. This is more than double the 15.4% probability reported in the last Philadelphia Fed survey at the beginning of the year.

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Business leaders and investors are also voicing concern. JPMorgan Chase CEO Jamie Dimon remarked that it’s too early to rule out a recession. “I wouldn’t take it off the table at this point,” he said on Thursday.

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Stephen Cohen, the billionaire investor and owner of the New York Mets, offered an even more cautious outlook. Speaking at an investor event in New York, he pegged the odds of a recession at 45% and predicted a significant deceleration in economic activity.

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Interestingly, consumer sentiment on Main Street appears less alarmed than it was a few months ago. Online searches for the term “recession” spiked in March and April — peaking at a three-year high — but have since dropped sharply. As the Trump administration began rolling back some tariffs, search volumes returned to levels seen before trade tensions intensified.

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While markets and consumers have welcomed the temporary pause in trade hostilities, economists warn that the U.S. economy is not out of the woods. Slowing growth, high tariffs, and lingering uncertainty about future trade policy could still pose substantial risks in the months ahead.

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