Today:
Economic Outlook Dives Just Three Months Into Trump’s Term
Probability of a recession leapt while growth outlook slumped, survey of economists finds
April 12, 2025 9:00 pm ET
https://www.wsj.com/economy/trade/us-economic-outlook-trump-b4e3469a?st=e8uyRj&reflink=desktopwebshare_permalink
President Trump is pushing his trade policies further than almost anyone imagined three months ago. PHOTO: ANDREW HARNIK/GETTY IMAGES
What a difference three months makes.
Since President Trump took office, economists have dramatically slashed estimates for growth while raising them for inflation and unemployment.
The main reason, according to respondents to The Wall Street Journal’s quarterly survey of economists: tariffs.
When the Journal last surveyed economists, from Jan. 10 to 14, they were unsure about many aspects of Trump’s policies, including tariffs, immigration restrictions and tax cuts. But they had to weigh that uncertainty against an economy that had consistently outperformed expectations.
The shift in economists’ outlook reflects that Trump is pushing his trade policies further than almost anyone imagined three months ago.
The survey gathered responses from 64 academic and business economists from April 4 to 8. That was after Trump announced a baseline duty of 10% on imports and larger, “reciprocal” tariffs on countries on April 2, which the president dubbed Liberation Day. The responses predate Trump’s announcement on April 9 of a 90-day suspension in the reciprocal tariffs while retaining the 10% baseline tariff and ratcheting duties up to 145% on China, which has retaliated, and a subsequent exemption for electronic products from China tariffs.
GDP after inflation (quarterly, annualized growth rate)Source: Wall Street Journal surveys of economists
Q3 2024Q4 2024Q1 2025Q2 2025Q3 2025Q4 2025Q1 202600.250.500.751.001.251.501.752.002.252.502.75%Apr. '25 forecastJan. '25 forecastOct. '24 forecast
Economists expect U.S. gross domestic product after inflation to expand just 0.8% in the fourth quarter from a year earlier, according to the survey’s average estimate. That is down from a forecast of 2% GDP growth in January. If accurate, it would make this year the economy’s worst since 2020, when the coronavirus pandemic caused a brief but deep downturn. Economists expect 1.8% GDP growth in 2026.
They also increased their estimated probability of recession in the next 12 months to 45%, up from 22% in January.
Probability the U.S. is in a recession in next 12 months including todaySource: Wall Street Journal surveys of economistsNote: Average of economists' answers. Gaps indicate question not asked or data unavailable.
RECESSION50%2006'10'15'20'250102030405060708090100%
“We’re dancing with recession,” said Joseph Davis, chief economist at Vanguard.
Stocks have sold off and bond yields have risen since April 2 in response to the trade war. The University of Michigan said Friday that its survey of consumer sentiment plunged to one of the lowest readings in a decade and that household inflation expectations reached their highest since the early 1980s.
Forecasting the economy always involves a fair amount of guesswork. The last time the Journal’s survey showed economists putting this high a probability on recession—during much of 2022 and 2023—they were dead wrong.
But uncertainty is especially high in the current moment because of Trump’s on-again, off-again approach to tariffs, which aim to rapidly reconfigure complex global supply chains that have been decades in the making.
No one—including, apparently, Trump himself—knows the final outcome. Top aides including Treasury Secretary Scott Bessent have for months reassured Wall Street that tariffs are intended to give the U.S. leverage in negotiations with trading partners. Trump himself suggested his tariffs weren’t going to change before pausing the tariffs on Wednesday and then telling reporters Thursday that higher tariffs could come back if trade deals aren’t reached.
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Reflecting that unpredictability, economists’ estimates for 2025 GDP growth spanned an unusually wide range.
Amy Crews Cutts projected a 2% contraction based on plummeting consumer and business sentiment and evidence from her clients that tariffs are already causing supply-chain problems. But James F. Smith of EconForecaster is forecasting 3.1% growth on the assumption Trump will quickly roll back any tariffs because they are “so outrageous.”
“It’s looking like brilliant diplomacy,” Smith said. “In the short run, I’d be very surprised to learn that most of the companies with critical supply chains don’t have big inventories in warehouses around the U.S.”
Matthew Fienup and Dan Hamilton, economists at California Lutheran University whose growth estimate was in line with the 0.8% average, said their forecast assumes “that Liberation Day tariff rates will be negotiated down significantly.”
Overall, economists projected the average U.S. tariff rate will rise about 19 percentage points in 2025. In January, they had assumed a 10-point increase. The average effective tariff last year was around 2.4%, according to the Tax Foundation.
Economists expect Trump’s new levies to subtract 1.2 percentage points from 2025 GDP growth and add 1.1 percentage points to inflation.
As a result, economists now see consumer prices rising 3.6% in December 2025 from a year earlier, up from 2.7% in January. The forecast for 2026 remained little changed at 2.6%, suggesting tariffs are expected to cause a one-off rise in the price level rather than sustained inflation.
Consumer-price index, year-over-year percentage change (actual and forecasts)Sources: Labor Department (actual); Wall Street Journal surveys of economists (forecasts)
2023'24'25'26'271.52.02.53.03.54.04.55.05.56.06.57.0%ActualApr. '25 forecastJan. '25 forecastOct. '24 forecast
In the past two recessions, the Federal Reserve slashed interest rates to near zero. But because most economists and policymakers expect Trump’s tariffs to push up prices—at least in the short run—the prospects for Fed rate cuts are clouded. The median economist in the Journal’s survey expects two quarter-point rate cuts by December and two more in 2026, leaving the benchmark federal-funds rate between 3.25% and 3.5% by the end of next year.
Economists also raised their average forecast for the year-end unemployment rate to 4.7% from 4.3% in January, then falling to 4.6% by the end of 2026.
Back in January, economist Mike Cosgrove of The Econoclast anticipated no impact on growth from Trump’s tariffs, which he saw as a negotiating tool. Now, he thinks the U.S. will be lucky to skirt a recession.
“It’s a huge shock to the whole global economy,” Cosgrove said, adding that Trump should have given businesses more time to adjust. “I totally support President Trump in his effort to level the playing field, but I don’t support how he has gone about that.”
Economists have been whiplashed by the big swings in tariff policy in recent weeks. Upon seeing the “reciprocal” tariffs take effect on April 9, economists at Goldman Sachs raised their estimated recession probability to 65% from 45% and slashed their GDP forecast—only to revert to previous projections after Trump announced the 90-day pause.
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The president, the Journal has reported, has privately acknowledged that tariffs could trigger a recession but has said he didn’t want to cause a depression.
Like tit-for-tat trade wars, though, recessions can evolve unpredictably, with feedback mechanisms that exacerbate the deteriorations in sentiment, spending, hiring and investment. That is why policymakers will typically spare no effort to avoid them.
“It’s hard to get people’s confidence back,” Cutts said."
