Deutsche Bank Survey: 40% Chance of U.S. Recession Due to Trump Tariffs

The recent survey conducted by Deutsche Bank has raised significant concerns about the U.S. economy, indicating that the probability of an economic recession has surpassed 40%. This alarming figure has been attributed to the ongoing "Trump shadow," a term that refers to the economic uncertainties and market volatility caused by the Trump administration's aggressive trade policies, particularly the imposition of tariffs on various goods.

Economists and market analysts have expressed worries that the Trump administration's escalating tariff measures could lead to a "Trump recession" or even stagflation. The unpredictable nature of these policies has created an environment of uncertainty, making it difficult for businesses to plan for the future and for investors to make informed decisions. The survey results highlight the potential risks to the U.S. economy, which could face a downturn if the current trade tensions persist.

The survey's findings come at a time when the U.S. economy is already facing several challenges, including slowing growth and rising inflation. The Federal Reserve has been closely monitoring these developments and has indicated that it may adjust its monetary policy in response to the changing economic landscape. However, the central bank's actions may be limited by the political pressures and the need to maintain stability in the financial markets.

The impact of the Trump administration's trade policies has been felt across various sectors, including manufacturing, technology, and healthcare. The imposition of tariffs on goods from China and other countries has led to increased costs for businesses, which have been passed on to consumers in the form of higher prices. This has raised concerns about the potential for a broader economic slowdown, as consumers may reduce their spending in response to the higher costs.

Despite the current low unemployment rate and generally positive economic data, the survey results reflect a growing concern among consumers and business leaders about the risks of economic slowdown or recession. Federal Reserve Chairman Jerome Powell acknowledged these concerns but maintained that the U.S. economy remains "generally strong," citing significant progress made over the past two years towards the Fed's goals.

However, during the recent two-day policy meeting, Powell and his colleagues lowered their forecast for the U.S. GDP growth rate for this year to just 1.7%. This would be the slowest growth rate since 2011, excluding the economic contraction caused by the COVID-19 pandemic in 2020. Additionally, Fed officials raised their projection for the core inflation rate to 2.8%, well above the central bank's 2% target, although they expect inflation to return to the target level by 2027.

The combination of rising inflation and slowing economic growth has increased the threat of stagflation, a phenomenon not seen since the early 1980s. While few economists believe that the current environment will replicate that era, the Fed faces a growing policy challenge: balancing the need to stimulate economic growth with the need to control inflation.

In recent weeks, the escalating and unpredictable tariff policies of the Trump administration have further fueled concerns about an economic recession. DoubleLine Capital CEO Jeffrey Gundlach warned that the U.S. economy faces a 50% to 60% chance of recession, which could lead to another period of painful market volatility. Morgan Stanley also noted that recent stock market adjustments have been disrupted by the uncertainty caused by changing tariff policies, raising fears of economic slowdown or recession.

Mark Zandi, chief economist at Moody's Analytics, cautioned that the risk of a U.S. recession is alarmingly high and rising. He warned that if the Trump administration implements retaliatory tariffs and maintains them for three to five months, it could "push the economy into recession."

Goldman Sachs recently lowered its forecast for U.S. GDP growth in 2025 from 2.4% to 1.7%, citing the impact of increased tariffs on consumer prices, tightening financial conditions, and reduced business investment. The UCLA Anderson Forecast also issued its first "recession warning," stating that the Trump administration's policies could lead to a recession within the next one to two years.