U.S. Recession Probability Surges to 80% Amid Tariff Turmoil
2min read Market participants have priced in an 80% probability of a U.S. recession, according to the Russell 2000 index, which is known for its cyclical nature and is believed to contain more information about the position of the U.S. economic cycle. The probability of a mild recession is almost 100%, according to market analysts.
The recent volatility in global financial markets has been attributed to the U.S. government's new round of tariff policies. These policies have heightened market concerns about global supply chain disruptions and rising inflation. The Cboe VIX, a measure of market volatility, surged from around 22 to approximately 45 within a week, reflecting the heightened anxiety among investors.
The U.S. government's tariff policies have been criticized for potentially raising prices and leading to a global economic recession. Jamie Dimon, CEO of jpmorgan chase, has warned that these policies could weaken the U.S.'s global economic standing. The bank's recent report suggests a 60% chance of a global economic recession by the end of the year, up from a previous estimate of 40%.
The Federal Reserve's response to the market turmoil remains uncertain. Despite calls for intervention, Fed Chairman Jerome Powell has indicated that adjusting monetary policy is premature. Market expectations for a rate cut have increased, with goldman sachs predicting three consecutive preventive rate cuts starting in June, and federal funds futures suggesting a 120 basis point cut by the end of the year.
The mixed signals from the U.S. government regarding tariff implementation have added to the market's uncertainty. While some officials have indicated negotiations to reduce tariffs, others have emphasized the necessity of maintaining them to revitalize U.S. manufacturing and reshape the global trade system.
The economic impact of the tariff policies is already being felt. The U.S. economy has shown signs of recession, with Goldman Sachs lowering its GDP growth forecast for the fourth quarter of 2025 from 1.0% to 0.5% and increasing the probability of a recession in the next 12 months to 45%, up from 35% just a week earlier.
The structural issues within the U.S. economy are becoming more apparent. The government's attempt to reduce the trade deficit through tariffs has backfired, as the increased cost of imported materials and components has weakened the competitiveness of U.S. businesses. The long-term strategy of using trade deficits to maintain the dollar's dominance and fuel the stock market is now under threat.
The market's fear and instability are not just temporary. In an interconnected global economy, no country can escape unscathed from a trade war. The U.S. government still has the opportunity to halt and correct its unequal tariff policies. Failure to do so could lead the U.S. into an economic winter of its own making.
