Evelyn Reynolds

Chances that the U.S. is heading for a recession are about 43%, according to a Deutsche Bank survey.
That raises more questions about the direction of the U.S. economy.

U.S. dollar banknotes and a label with the word “Recession” are seen in this illustration taken March 19, 2025.
Dado Ruvic | Reuters

Chances that the U.S. is heading for a recession are close to 50-50, according to a Deutsche Bank survey that raises more questions about the direction of the U.S. economy.
The probability of a downturn in growth over the next 12 months is about 43%, as set by the average view of 400 respondents during the period of March 17-20.

Though unemployment remains low and most data points suggest continuing if not slowing growth, the survey results reinforce the message from sentiment surveys that consumers and business leaders are increasingly concerned that a slowdown or recession is a growing risk.
Federal Reserve Chair Jerome Powell last week acknowledged the worries but said he still sees the economy as “strong overall” featuring “significant progress toward our goals over the past two years.”
Still, Powell and his colleagues at the two-day policy meeting that concluded Wednesday lowered their estimate for gross domestic product this year to just a 1.7% annualized gain. Excluding the Covid-induced retrenchment in 2020, that would be the worst growth rate since 2011.
Additionally, Fed officials raised their outlook for core inflation to 2.8%, well above the central bank’s 2% goal, though they still expect to achieve that level by 2027.

The combination of higher inflation and slower growth raise the specter of stagflation, a phenomenon not experienced since the early 1980s. Few economists see that era replicated in the current environment, though the probability is rising of a policy challenge where the Fed might have to choose between boosting growth and tamping down prices.

Markets have been nervous in recent weeks about the prospects ahead. Bond expert Jeffrey Gundlach at DoubleLine Capital told CNBC a few days ago that he sees the chances of a recession at 50% to 60%.
“The recent equity market correction was punctuated by the ‘uncertainty shock’ of ever-evolving tariff policy, with investors concerned it could morph into a slowdown or even recession,” Morgan Stanley said in a note Monday. “What’s really at the heart of the conundrum, however, is that the U.S. might be at risk for a bout of stagflation, where growth slows and inflation remains sticky.”
Powell, however, doubted that a repeat of the previous bout of stagnation is in the cards. “I wouldn’t say we’re in a situation that’s remotely comparable to that is likely,” he said.
Barclays analysts noted that “market-based measures are consistent with only a modest slowing in the economy,” though the firm expects a growth rate this year of just 0.7%, barely above the recession threshold.
UCLA Anderson, a closely watched and widely cited forecasting center, recently turned heads with its first-ever “recession watch” call for the economy, based largely on concerns over President Donald Trump’s tariffs.
Clement Bohr, an economist at the school, wrote that the downturn could come in a year or two though he said one is “entirely avoidable” should Trump scale back his tariff threats.
“This Watch also serves as a warning to the current administration: be careful what you wish for because, if all your wishes come true, you could very well be the author of a deep recession. And it may not simply be a standard recession that is being chaperoned into existence, but a stagflation,” Bohr said.
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IRS officials are expecting tax revenue to drop by more than 10% by April 15, the Washington Post reported.
Officials said the prediction is directly linked to shifting taxpayer behavior and President Donald Trump’s cuts at the IRS, the paper said.

Officials at the Internal Revenue Service and Treasury Department are anticipating tax revenue to drop more than 10% by April 15 compared with last year, the Washington Post reported Saturday, citing three people with knowledge of the situation.
The loss of tax receipts is expected as more individuals and businesses don’t file taxes or attempt to avoid paying balances owed to the IRS. The amount of lost federal revenue could top $500 billion, the paper said.

Officials said the prediction is directly linked to shifting taxpayer behavior and President Donald Trump’s cuts at the IRS, the Washington Post said.
Thousands are expected to lose their jobs at the agency as part of Elon Musk’s Department of Government Efficiency spending cuts. Experts have warned that the cuts during tax season could materially impact filers.
The IRS has also noted increased chatter online from people saying they won’t pay taxes this year or will make aggressive claims they aren’t eligible for in a gamble that they won’t be audited, the Washington Post reported.
The Treasury Department told the paper the story was “sensational and baseless” and said the anonymous sources “should be dismissed out of hand.”

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U.K. growth remains stagnant and the economy is plagued by longstanding structural issues, but reports indicate a growing sense of optimism around the country from overseas investors.
Higher capital spending, a regional defense spending boost and the possibility that the U.K. will swerve U.S. tariffs are all adding to this picture.
However, some note that the U.K. is not “out of the clear” from President Donald Trump’s tariff path just yet, and is already being hit by his steel and aluminum duties.

LONDON — Some investors are expressing a growing optimism about the U.K.’s economic outlook despite the country’s long-standing structural weaknesses, as its neighbors in the European Union deepen their trade dispute with the United States.
That upbeat tone wasn’t reflected in the messaging of the Bank of England, as it held interest rates steady last Thursday, citing increased geopolitical uncertainty and indicators of financial market volatility. However, U.K. economic growth — tepid at best for the last three years — is finally expected to pick up somewhat in 2025, with Bank of America analysts forecasting a 1.4% expansion.

Inflation is still expected to cool back near-target in the months ahead, the labor market is loosening but remains robust, and the U.K. government has a determined focus — at times controversially — to support growth and reduce the national deficit.
Sanjay Raja, chief U.K. economist at Deutsche Bank, said that, on a recent client trip to the U.S. he noted a “budding sense of optimism” around the U.K. not seen in some time.
Key factors included a pivot toward deregulation and focus on more capital spending, the potential for a strong trade deal with the EU in the coming year, and an expectation the the U.K. will “stay in the US’ ‘good books’ as a trade war kicks off,” Raja said in a note earlier this month.
U.S. President Donald Trump has expressed a willingness to spare the U.K. from blanket or targeted tariffs, with expectations bolstered after U.K. Prime Minister Keir Starmer conducted a friendly trip to the White House in February.

EU delays implementing first retaliatory tariffs on U.S. goods to middle of April

“Talk of a U.S. trade deal also surfaced in client conversations, and there was increased optimism that the U.K. may be spared from direct and widespread tariffs,” Raja said.

Some felt “structural growth could be on the rise after a steady decline since the global financial crisis,” he continued, while a broad European push to increase national defense spending could benefit U.K. corporates. Points of concern for investors remained January’s sell-off in U.K. government debt, fiscal headroom and the sustainability of spending cuts, Raja observed.

Still trade risks

The U.K. may have been spared the worst of Trump’s rhetoric so far — such as his threat of 200% tariffs on EU alcohol imports — but it is not totally immune from Washington’s protectionist push.
Gabriella Dickens, G7 economist at AXA Investment Managers, noted that the U.K. still faces a hit due to the new U.S. tariffs on steel and aluminum. The U.K. exported a total of £370 million ($479.7 million) in steel to the U.S. in 2024, according to trade group UK Steel, accounting for 9% of total U.K. steel exports by value. Britain’s aluminum exports to the U.S. totaled were valued at around £225 million last year, the U.K.’s Aluminium Federation says.
The U.K. will also be impacted by any slowdown in global trade, including if this leads to weaker demand in its key partners such as the EU, and if general uncertainty erodes business and consumer confidence, Dickens told CNBC.
“Investor sentiment may be boosted if the U.K. manages to avoid further tariffs, particularly if trade tensions ramp up with the EU,” Dickens said. In the unlikely event Trump follows through with his prior threat of blanket 25% tariffs on the EU, a “material boost” would be provided to the U.K. as manufacturers would likely look to relocate, she said.

EU delays implementing first retaliatory tariffs on U.S. goods to middle of April

The U.K. could still avoid further tariffs, since it has no large trade surplus with the U.S. and the majority of that is services-based. It has already pledged to boost its defense spending as a share of gross domestic product (GDP), avoiding much of Trump’s ire with other nations.
“Neither of these have spared the U.K. from the steel and aluminum tariffs, though,” Dickens added.
Lindsay James, investment strategist at Quilter Investors, also stressed the existing impact of steel and aluminum duties on the U.K. and flagged potential risks from the reciprocal U.S. tariffs due to be announced early April.
“The idea that VAT is some kind of tariff seems to have taken hold in the White House, placing the U.K. once again at considerable risk of coming into the crosshairs of U.S. trade policy,” James told CNBC.
“Whilst the reality is likely being willfully misrepresented by the White House in order to gain a negotiating advantage, the U.K. is not yet in the clear and, if Donald Trump’s demands on Ukraine are anything to go by, any future trade deal would likely come at a heavy price.”
James added that, while the government was improving the foundations of the U.K. economy in the long run, growth remained on a weak trajectory in the near term, with businesses hit by higher costs stemming from last year’s budget and continued issues with an “older and sicker workforce.”
“Whilst the [U.K.] stock market has so far benefitted from its perception of defensiveness, a modest starting valuation and a strong performance from heavily represented sectors such as oil and gas and financials, the divergence from the performance of the economy could lead to the large cap index continuing to outperform domestic stocks,” she said. More

Chicago Federal Reserve President Austan Goolsbee said Friday he still sees interest rate cuts in the cards though risks are rising to that outlook.
The central banker told CNBC that he’s been hearing more concerns from businesses in his region about the impact of tariffs.
“If we can continue to make progress on inflation over the long run, I believe that rates 12 to 18 months from now will be lower than where they are today,” he said.

Chicago Federal Reserve President Austan Goolsbee said Friday he still sees interest rate cuts in the cards though risks are rising to that outlook.
Speaking two days after he and his colleagues again voted to keep short-term rates steady, Goolsbee told CNBC that he’s been hearing more concerns from businesses in his region about the impact of tariffs and their potential to raise prices and slow growth.

“When you got a lot of uncertainty, I do think you need to wait to see some of these things get cleared up on the policy side,” the central banker said during a “Squawk Box” interview. “I’m out talking to business people and civic leaders throughout this region, and there’s been a decided turn in these conversations over the last six weeks, of anxiety, of pausing, waiting on capital projects, capex, etc., until they figure out tariffs, other fiscal policy.”
Nevertheless, Goolsbee said he still expects future rate cuts even if the Fed is taking a wait-and-see approach for now as issues play out over President Donald Trump’s tariff plans as well as deregulation and tax cuts.
“If we can continue to make progress on inflation over the long run, I believe that rates 12 to 18 months from now will be lower than where they are today,” he said.
Speaking separately Friday morning, New York Fed President John Williams also noted the high level of uncertainty around decision-making and economic trends, particularly inflation.
“Recent data — both hard and soft — are sending mixed signals. Measures of policy uncertainty have increased sharply in recent months,” Williams said during a speech in Nassau, the Bahamas.

Both policymakers voted with the rest of the Federal Open Market Committee to hold the short-term fed funds rate in a range between 4.25%-4.5%. In its post-meeting statement, the FOMC noted that “uncertainty around the economic outlook has increased” and Chair Jerome Powell used the term “uncertainty” 10 times in his post-meeting news conference.
One question that has come up in recent days has been whether the U.S. economy is headed toward stagflation, or slow growth and rising inflation.
“Tariffs, raise prices and reduce output. So that’s a stagflationary impulse, which is different from saying this is stagflation,” Goolsbee said. “The unemployment rate is barely 4% and inflation is in the 2s. So the hard data that we start from is not the stagflation of the 1970s. It’s just the … the uncomfortable environment is when it’s moving directionally the wrong way.”
FOMC meeting participants kept their projections for two rate cuts through 2025. Markets, though, think the Fed will be more aggressive, pricing in the equivalent of three quarter percentage point reductions, according to CME Group data.

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