Economists Trim US Recession Probability to 33% Amid Shifting Trade Outlook

Economists have significantly scaled back their concerns regarding the economic impact of U.S. trade policies, leading to a more optimistic outlook for growth and job creation, alongside a reduced risk of recession and more moderate inflation. This shift in sentiment was highlighted in a recent Wall Street Journal survey, indicating a notable revision from earlier, more pessimistic forecasts.

The updated projections now place the probability of a U.S. recession within the next 12 months at 33%, a considerable decrease from previous estimates. This positive adjustment is largely attributed to an easing of the immediate threat of imposing new tariffs on key U.S. trading partners. Despite this, trade uncertainty continues to be a factor in the economic landscape, as tensions persist with various nations.

The Wall Street Journal survey indicates a slight improvement in the forecast for GDP growth, with expectations rising to 1% for the fourth quarter. While this marks an increase from the prior forecast of 0.8%, it remains less than half of the January projections, suggesting economists maintain a degree of caution. The U.S. economy has demonstrated resilience, with consumers continuing to spend, though the overall mood has transitioned from bold confidence to a more cautious approach.

Recent economic data support this improved outlook, showing enhanced job growth and a decline in the unemployment rate. However, concerns linger regarding the long-term effects of tariffs on inflation and the spending habits of both consumers and businesses. Experts note that it may take time for the full impact of other policies, such as immigration crackdowns and tax cuts, to fully manifest in the real economy.

According to a Deloitte economic forecast for Q2 2025, higher tariff costs coupled with elevated interest rates could lead businesses to slow investment and hiring, potentially pushing the unemployment rate to 4.6% in 2026. However, scenarios where trade tensions ease suggest inflation could fall more quickly, empowering consumers with additional purchasing power and allowing the Federal Reserve to adopt a more dovish monetary policy. This would enable rate cuts, potentially starting in the third quarter of 2025, and foster increased business investment.