WASHINGTON ¨C In November 2024, the consensus among economists was clear. The United States was powering ahead of all other advanced economies, a trend reflected in robust growth, high investment flows, strong productivity, a tight labor market with rising wages and moderating inflation. The outlook for 2025 was bright.
Not anymore. The odds of a recession have shortened, consumer and business sentiment is falling and stock and bond markets are in disarray. President Donald Trump¡¯s ¡°Liberation Day¡± tariffs against all of America¡¯s trade partners ¡ª and the dubious formula behind the policy ¡ª have sent America¡¯s animal spirits into hibernation.
The reactions from the stock and Treasury markets were so negative that Trump soon blinked, announcing a 90-day pause on most of the new import levies a day after they went into effect. But his administration has stuck with a general 10% rate with most countries. While markets have rebounded somewhat, they could be spooked again easily. Uncertainty and volatility remain highly elevated, because no one knows what to expect next.
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