Recession Fears: Consumers and CFOs Brace for Impact

The stock market experienced a relief rally to start the week, and attempted to keep the comeback going on Tuesday morning, as comments from the Trump economic team over the weekend suggested a softer stance on tariffs. But within the boardroom, hope is not likely to replace caution any time soon. Many executives in the C-suite and across the economy remain disturbed about the trade war outlook and a White House that has given every indication it is ideologically committed to a major change in global economic policy. Shifting messages from President Trump that continue to add confusion to the tariff planning process haven't helped.

In a word, the "pessimism" has crept back in where the animal spirits had been after Trump's election. That's one way to sum up the results from the latest CNBC CFO Council quarterly survey for Q1 2025. While some chief financial officers said Trump is doing what he promised on the campaign trail, many CFOs said the way he is going about delivering on his agenda is not what was expected. "Too chaotic for business to navigate effectively" was how one CFO respondent framed their view of Trump's second term to date. "Extreme"; "Disruptive"; "Aggressive"; "A wild ride," were some of the other ways CFOs portrayed their current view.

It all adds up to a majority of CFOs (60%) saying they expect a recession in the second half of the year – another 15% say a recession will hit in 2026. Just a quarter ago, when the recession question in the quarterly survey was laid on the Fed rather than Trump – in the Q4 2024 survey, we asked whether the central bank's efforts to tame inflation would lead to an economic slump – only 7% of CFOs said they thought that was on the calendar for 2025.

In recent weeks, recession has become a more popular default setting in the market, for the first time since the Fed began aggressively raising interest rates to beat back runaway inflation in March 2022. The odds of recession are running as high as 50% at some financial firms, new "recession watch" indicators are being created, and other recent CNBC surveying, among money managers and economists, shows a spike in recession fears.

The CFO Council survey is a sampling of views from chief financial officers at large organizations across sectors of the U.S. economy, with 20 respondents included the Q1 survey conducted between March 10 and March 21.

U.S. trade policy is the primary reason for the new economic downturn base case. It is now being cited as the top external business risk by CFOs, at 30%, followed by the related risks: inflation (25%) and consumer demand (20%), with the latest reading on consumer confidence in income, business and job prospects hitting a 12-year low.

Ninety percent of CFOs say tariffs will cause "resurgent inflation," and as CFOs worry more about prices, expectations for when the Fed can engineer it back down to 2% in keeping with its dual mandate keep getting pushed further out. Despite Fed Chair Jerome Powell himself holding out hopes that any tariffs inflation may be "transitory," half of CFOs now say that the 2% target inflation rate will not be achieved until either the second half of 2026 or 2027.

Pressure on U.S. treasury bond yields is expected to remain, with 65% of CFOs saying the range will still be between 4% and 5% at the end of 2025 (50% of CFOs expect yields to stay within the lower end of this range, between 4% and 4.5%, where 10-year treasury are today).

As industries look to the White House for tariff exemption deals molded in their own self-interest, the general level of economic and market uncertainty among business executives across sectors was registered in one unusual way in the quarterly survey. Typically, when asked to name the stock market sector that will do the best over the next six months, CFOs choose tech, health care or energy. In the history of the survey, the responses to this question rarely deviate from those three sectors. This quarter, though, the majority CFO opinion on the sector with the best growth prospects was, "Don't know."

Few CFOs think the bull market will quickly resume its march upwards, with 90% of respondents saying the Dow Jones Industrial Average will retest 40,000 before ever reaching 50,000, which indicates the potential for several thousand points more in the index lost.

In a more key, core way, the cautious corporate view was evident in the change quarter over quarter with respect to spending plans, with the number of CFOs who say their firm plans to increase capex this year declining from Q4. It was not a precipitous decline (roughly 10%), but it is trending in the wrong direction. The largest share of respondents expect spending to remain in line with the recent trend at their companies (45%), and even as it declines as a budget stance, there are still more who expect an increase (35%) in spending than a decrease (20%).

Overall, 95% of CFOs said policy uncertainty is having an impact on their business decision-making.



The U.S. Federal Reserve concluded its meeting exactly as market watchers had expected: by keeping interest rates steady. While a cut might have been a pleasant surprise to some — as lower interest rates generally support the economy and stock market — it could also have intensified investors' worries that the economy is headed south. It was the Fed's dot plot, or a projection of where central bankers think interest rates will end up in the upcoming years, that provided the balm. Going into the meeting, some investors were concerned that the Fed may refrain from cutting interest rates this year given the uncertain effects on inflation by U.S. President Donald Trump's tariffs. But the Fed decided to retain its estimated two cuts for 2025, which helped the stock market bounce. In these volatile times, acting as anticipated, and reinforcing expectations when doubts creep in can have a more decisive impact than any surprise stimulus measures.

The Wall Street adage to never bet against the U.S. consumer still holds true — to some degree. February's retail sales, while lower than expected, still registered an increase. For the skeptics, that is like desperately squinting for a silver lining. It might very well be. But the dark clouds, in the form of U.S. President Donald Trump's tariffs, are more ominous than usual. Tariffs, after all, are a tax on imported goods that will likely be passed on to the consumer. That has weighed on consumer sentiment, as measured by surveys like those from the University of Michigan. Even U.S. National Economic Council Director Kevin Hassett acknowledged that Trump's tariffs will cause some uncertainty. The Organisation for Economic Co-operation and Development has already lowered its growth outlook for the U.S. because of that. While the Trump administration is confident that stocks will recover their footing, strategists may also start revising downward their market forecast if the outlook does not clear up.