Economists Caution: Trump as a Catalyst for Chaos and Confusion

The return of President Donald Trump to the White House has sparked global market instability and geopolitical tensions, raising concerns that the U.S. economy may be on the brink of recession. However, economists argue that a downturn is not imminent.

“I don’t foresee discussions about a U.S. recession. The U.S. economy is remarkably resilient, particularly in light of Donald Trump’s presidency,” stated Holger Schmieding, chief economist at Berenberg Bank, during an appearance on CNBC’s “Squawk Box Europe” this Monday.

Referring to Trump as an “agent of chaos and confusion,” Schmieding criticized the president’s inconsistent tariff strategies, suggesting that he lacks understanding of their implications.

Nevertheless, he noted, “U.S. consumers have disposable income, which they are likely to spend. The labor market remains relatively strong, and with energy prices decreasing and potential tax cuts and deregulation on the horizon, I am not worried about an imminent recession risk,” Schmieding explained.

“However, what’s becoming increasingly evident in the long term is that Trump is adversely affecting U.S. trend growth, which refers to growth expected in years beyond 2026. His actions are contributing to higher prices for U.S. consumers, indicating that the Fed [Federal Reserve] has no incentive to lower rates with Trump in office, given the chaos and confusion he instigates,” he added.

CNBC has reached out to the White House for a statement and is currently awaiting a response.

Recently, global stock markets have experienced significant upheaval amid concerns over Trump’s intention to reignite a global trade war after he announced stringent import tariffs on products from China, Mexico, and Canada.

Following this, ambiguity and uncertainty have prevailed, as Trump announced on Friday a delay until April 2 for certain tariffs on neighboring countries and key trading partners.

Trump’s unorthodox methods regarding trade and international relations have left markets underwhelmed, resulting in erratic performance of U.S. indices, while analysts caution that negative sentiment is likely to persist during the Trump 2.0 administration. U.S. stock futures dropped earlier on Monday morning, suggesting more turbulent times ahead for American markets as the new trading week kicks off.

Business leaders and economists express concerns that tariffs may exacerbate inflationary pressures on the U.S., with consumers expected to shoulder the burden of increased prices for imported goods.

They also caution that investments, job creation, and economic growth could be hindered, as consumers are likely to cut back on spending and prepare for a phase of economic uncertainty and potential “stagflation,” characterized by high inflation and elevated unemployment.

This scenario would compel the Fed to maintain current interest rates instead of reducing them from their existing benchmark range of 4.25%-4.5%, which is typically aimed at stimulating economic activity. Lower interest rates tend to encourage increased spending, which can drive inflation.

On Friday, Fed Chairman Jerome Powell noted that the central bank could afford to wait and see how Trump’s aggressive policy initiatives unfold before making any changes regarding interest rates.

Recent economic data indicating a decline in consumer confidence for February will surely prompt reflection within the Trump administration. The Federal Reserve Bank of Atlanta’s GDPNow tracker revealed last week that the U.S. gross domestic product could decline by 2.4% for the January to March period. A technical recession is defined as occurring when there are at least two consecutive quarters of negative growth.

Last week’s employment data also revealed that although the U.S. labor market continues to grow, signs of fragility may be emerging. Nonfarm payrolls data indicated job growth in February fell short of expectations, and while job growth remains stable, this occurs amidst Trump’s plans to reduce the federal workforce.

Nonfarm payrolls saw an increase of a seasonally adjusted 151,000 for the month, surpassing January’s downwardly revised 125,000 but falling short of Dow Jones’ consensus forecast of 170,000, as reported by the Labor Department’s Bureau of Labor Statistics on Friday. The unemployment rate inched up to 4.1%.

TS Lombard Chief U.S. Economist Steven Blitz commented that the most recent employment data “indicates ongoing economic growth” and does not point to “increased recession risks brought about by the various policies of Trump.”

However, he noted in a note on Friday that “the cumulative effects of Trump’s actions could still disrupt the economy in unforeseen ways, including a collapse in capital spending.”

“It’s essential to remember that presidents often accept downturns in their first year in office. They have a free pass to attribute blame to the preceding administration while claiming credit for the recovery. My prevailing expectation remains growth along with the Fed holding steady. My main concern stems from the capital markets; disrupt trade, and you risk interrupting the capital inflows that sustain the economy,” Blitz elaborated.

Trump has not ruled out the possibility of a recession this year but asserted over the weekend that the economy is undergoing a “period of transition.”

During an interview on Fox News Channel’s “Sunday Morning Futures,” when asked about the Atlanta Fed’s prediction of an economic contraction, Trump seemed to concede that his tariff measures could impact U.S. growth.

“I dislike making predictions like that,” he said on Sunday when queried about the recession threat.

“There is a transition period because what we are doing is very significant. We are bringing wealth back to America, which is substantial.” The President added, “It requires a bit of time. It takes a little time.”

In a report last week, JPMorgan’s U.S. Market Intelligence unit highlighted that the U.S. economy is entering “another period of uncertainty” due to the unpredictable effects of tariffs. The analysts adopted a “bearish” stance on U.S. stocks, anticipating increased market volatility and potential for U.S. growth to “crater.”

“We have already witnessed the adverse effects of policy and trade uncertainty on both household and corporate expenditure, making it likely that the magnitude of this effect will amplify over the upcoming month. We need to monitor the unemployment rate, layoffs, WARN notices, etc. If we observe a rapid rise in unemployment, it may trigger a return to the ‘Recession Playbook,'” noted JPMorgan.

While the bank does not consider a U.S. recession to be its base scenario, JPMorgan analysts cautioned that “the uncertain duration of tariffs and the potential for the trade war to escalate could lead to downward revisions in U.S. GDP growth estimates.”

“Given the absence of a definitive resolution to this escalation, the expectation is that tariffs of this magnitude could push Canada and Mexico into recession. We anticipate a significant drop in U.S. GDP growth forecasts and substantial reductions in earnings revisions, necessitating a reassessment of year-end projections. In light of this, we are adjusting our stance to Tactically Bearish,” they concluded.