The US economy is poised to decelerate as the financial markets and the economic indicators suggest that the risks are rising. Investors are afraid of the downturn; the bond markets have issued warnings, and the Trump administration policies have created more questions.
Bond Market Predicts Trouble
At present, the bond market is indicating that there is something wrong with the economy. The yields on the short-term Treasuries have plummeted, indicating that the Federal Reserve is likely to lower its interest rates to avoid recession. The Atlanta Fed’s GDPNow tracker has also revised its estimate of a 0.2 percent growth in the first quarter of 2025 and now expects a contraction.
Gennadiy Goldberg of TD Securities says, “A few weeks ago, everyone was asking if the economy was speeding up. Today, it is all about recession fears.”
Recessions are a real threat given Trump’s tariffs
The tariffs that the Trump administration has imposed are making things worse. Tariffs, in general, increase prices, but today, they are seen as having a tendency to lead to recessions, as they affect supply chains, corporate investments, and consumer spending. The recent tariffs on China, Canada, and Mexico have led to more volatility in the stock markets and have increased the risk of federal job and spending cuts.
Treasury Secretary’s Reassurances
Reassurance comes from Treasury Secretary Scott Bessent, who refers to the slowdown as a “detox” that is required for switching to private sector-led growth. Nevertheless, February’s lackluster employment report, which showed that unemployment rate rose to 4.1%, suggests that the situation is worse than it seems to be.
What’s Next?
The market expects Federal Reserve rate cuts, but inflation has ticked up to 3% from 2.4%, which makes policy decisions harder. The U.S. economy is in for a delicate dance in the coming months.
