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dean baker
Call What's Coming the 'Donald J. Trump Recession,' Says Economist
"While a recession may not be fully baked into the cards at this point, the risk is evident and it's almost entirely coming from Donald Trump's policies."
Mar 10, 2025
As U.S. financial markets continued their downward spiral on Monday amid rapidly mounting concerns about the impacts of President Donald Trump's erratic and destructive tariff policies, one economist argued that the president has almost single-handedly engineered economic conditions that could result in a recession in the near future.
"Past recessions have been the result of policy errors or disasters," Dean Baker, senior economist at the Center for Economic and Policy Research, wrote Monday. "The most typical policy error is when the Federal Reserve Board raises interest rates too much to counter inflation. That was clearly the story in the 1974-75 recession as well as the 1980-82 double-dip recession."
"Then we have recessions caused by collapsing financial bubbles, the 2001 recession following the collapse of the stock bubble and the 2008-09 recession following the collapse of the housing bubble. And of course, we had the 2020 recession because of the Covid pandemic," he added. "But now Donald Trump is threatening us with a recession, not because of something that is any way unavoidable, but rather because as president he has the power to bring on a recession."
Baker pointed specifically to Trump's decision to impose sweeping tariffs on imports from Canada, Mexico, and China, which the economist estimates will cost Americans roughly $2,000 per household as companies push the costs of the tariffs onto consumers in the form of higher prices.
Trump is going to give us a recession, because he can cepr.net/publications...
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— Dean Baker (@deanbaker13.bsky.social) March 10, 2025 at 12:04 PM
Retaliatory measures are also likely to inflict pain on Americans: On Monday, Ontario announced it would charge 25% more for the electricity it provides to Minnesota, New York, and Michigan in response to Trump's tariffs on Canadian imports, a move that's expected to hike electricity bills significantly for ratepayers in those states.
China, meanwhile, hit back at Trump Monday with an additional 15% tariff on U.S. farm products, including chicken, pork, soybeans, and beef.
Trump's tariff policies, and the widespread confusion surrounding their implementation, have sparked a sell-off on Wall Street and broader fears about the state of the U.S. economy as the labor market shows signs of stalling and consumer confidence plunges.
"While a recession may not be fully baked into the cards at this point, the risk is evident and it's almost entirely coming from Donald Trump's policies," Baker argued, noting that while the recession threat is "first and foremost" driven by tariffs, they "are just one possible route."
"The other is Elon Musk's DOGE team attack on the government. If there was ever any doubt, it is now clear that this outfit has nothing to do with increasing government efficiency," Baker wrote. "The direct impact of Musk's job cuts on both the budget and the economy is likely to be small. The bigger impact is the uncertainty they have created in large sectors of the economy."
"In short, Donald Trump has good reasons for telling us that his MAGA policies might give us a recession," he added. "It's hard to know how bad this recession would be, but it will definitely be the 'Donald J. Trump recession.'"
"Will the Trump slump turn into a recession? How will Trump lie and cheat his way out of it? Stay tuned."
Baker's assessment came a day after Trump declined to rule out the possibility of an economic recession in the U.S. this year and downplayed the effects of his tariffs, claiming without a shred of evidence that they will make the country "so rich you're not going to know where to spend all that money."
Trump previously insisted that the U.S. stock sell-off was attributable not to his chaotic tariff announcements, but to "globalists that see how rich our country is going to be and they don't like it."
Former U.S. Labor Secretary Robert Reich wrote Monday that just seven weeks after Trump's inauguration, "the bottom is falling out" of the U.S. economy.
"Stocks are plunging. Treasury yields are falling. Consumer confidence is dropping. Inflation is picking up," Reich wrote. "The cost of living—the single biggest problem identified by consumers over the last several years—is going up, not down. Trump's tariffs on steel and aluminum, and his threatened 25% tariffs on Canada and Mexico, are playing havoc with supply chains inside and outside America."
"Even before this Trump slump, only the richest 10% of Americans had enough purchasing power to keep the economy going with their spending. The bottom 90%—including most Trump voters—were barely getting by. The next eighteen months could be rough on millions of people," he continued. "Will the Trump slump turn into a recession? How will Trump lie and cheat his way out of it? Stay tuned."
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The Really Great February Jobs Report
If wage growth is now more or less in line with the 2% target, then the Fed can hold off on further rate hikes.
Mar 12, 2023
The failure of Silicon Valley Bank on Friday overtook the really big event of the day, the February jobs report. The 311,000 jobs were far more than I had expected. I thought the huge January number was a fluke of seasonal adjustments and unusually good winter weather. For that reason, I expected the February number to be very weak, not because I thought the labor market had crashed, but just as a correction to the high number in January.
I was wrong in a very big way. The January number was obviously real and the economy is still creating jobs at a very rapid clip.
This is somewhat concerning in that there is no way the economy can keep creating jobs at this pace without seeing some serious inflationary pressure, but this is where the other part of the good news story comes in. Wage growth slowed in February. The slower growth in February, combined with a downward revision to the January number, gave us a 3.6% annual rate of wage growth over the last three months.
This pace of wage growth is consistent with the Fed’s 2% inflation target. We had wage growth at this pace through much of 2018 and 2019 even as inflation was coming in slightly under the targeted rate.
I ordinarily would not be cheering slower wage growth, but the reality is that the Fed is determined to bring inflation down towards its target. If wages are growing at a pace that is faster than is consistent with its target, it will keep raising rates, and throwing people out of work, until wage growth slows.
If wage growth is now more or less in line with the 2% target, then the Fed can hold off on further rate hikes. Hopefully, it would then allow the economy to continue to grow with the unemployment rate remaining near 3.5%.
Of course, we do need to see real wage growth and inflation has been running faster than 3.5%. However, there are good reasons for believing that inflation will be slowing in the months ahead. Most importantly, we know that inflation in rents will slow sharply, as private indexes measuring rents of units coming up on the market have showed little or no inflation in recent months. The CPI rent index, which measures the rent of all units (both those that come up on the market and those with a continuing tenant) follows these indices with a lag of 6-12 months.
It is also likely that we will see further drops in many of the supply chain goods, most importantly cars, where temporary shortages sent prices soaring in the pandemic. This will help put downward pressure on inflation in goods, and also services like car repairs, where the cost of goods is a large part of the price.
And, we are also likely to see less inflation in food prices. The wholesale prices of many items, most notably eggs, has fallen sharply in the last couple of months. This should show up in lower prices in stores.
If we have a story where wages are rising at a 3.6% annual rate, and inflation falls to under 2.5%, then we would be seeing a respectable pace of real wage growth. We can hope for better, and also that we continue to see disproportionate growth at the bottom, but low unemployment and modest real wage growth is a pretty good picture.
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As Debt Ceiling Alarm Sounded, GOP Accused of Plotting 'Terrorist Attack on the Economy'
"They have the tiniest majority of one house and they are prepared to use it to get concessions they know are incredibly unpopular," one economist lamented.
Jan 13, 2023
As Treasury Secretary Janet Yellen warned Friday that the United States is likely to reach its arbitrary borrowing limit next week, progressives denounced congressional Republicans for threatening to use a debt ceiling standoff to force cuts to popular federal programs including Medicare and Social Security.
"They have the tiniest majority of one house and they are prepared to use it to get concessions they know are incredibly unpopular," Dean Baker, co-director of the Center for Economic and Policy Research, toldThe Washington Post. "It would be a terrorist attack on the economy."
Yellen announced that once the outstanding debt of the U.S. hits the statutory limit of $31.4 trillion—an event projected to happen on January 19—the Treasury Department will start repurposing federal funds to delay the date the government runs out of money. Until Congress raises the debt limit, the Treasury cannot borrow additional money, including to pay for spending that has already been authorized.
In a letter to congressional leaders, Yellen wrote that "the use of extraordinary measures enables the government to meet its obligations for only a limited amount of time," possibly through early June. She implored Congress to "act in a timely manner to increase or suspend the debt limit," warning that "failure to meet the government's obligations would cause irreparable harm to the U.S. economy, the livelihoods of all Americans, and global financial stability."
House Speaker Kevin McCarthy (R-Calif.) suggested—before the GOP won its slim House majority during November's midterms—that if elected to lead the chamber, he would refuse to lift the country's borrowing limit unless Democrats agreed to slash the social safety net and climate investments in return.
To secure enough votes to win his drawn-out battle for the speaker's gavel, McCarthy made undisclosed promises to far-right lawmakers, including several House Freedom Caucus members who have expressed opposition to raising the debt ceiling even if all of their demands, from shredding vital social programs to passing draconian immigration restrictions, were met.
\u201c\ud83d\udea8\ud83d\udea8 House Republicans plan to revive a key part of their failed 2017 attempt to repeal the Affordable Care Act as a debt limit demand, in addition to demanding Medicare cuts.\n\n"If you don't kick millions off their health care we'll wreck the US economy." https://t.co/bOsKydETAm\u201d— Rep. Don Beyer (@Rep. Don Beyer) 1673620603
The fight over the debt ceiling represents one of McCarthy's "most difficult balancing acts," CNNnoted recently. The California Republican will "need to work with Senate Democrats and President Joe Biden to cut a deal and avoid economic catastrophe without angering his emboldened right flank for caving into the left."
McCarthy told reporters Thursday that "he hoped to 'sit down with [Biden] early' to work through a number of outstanding fiscal issues, potentially including the looming need to raise the debt ceiling," the Post reported. "In doing so, McCarthy reaffirmed Republicans' interest in seeking an agreement that could cap spending in exchange for votes to address the country's borrowing cap."
"We've got to change the way we're spending money wastefully in this country," McCarthy said. "And we're going to make sure that happens."
Notably, Capitol Hill's deficit hawks do not support reducing the Pentagon's ever-expanding budget or hiking taxes on the rich to increase revenue. On the contrary, the first bill unveiled by House Republicans in the 118th Congress seeks to rescind most of the Inflation Reduction Act's roughly $80 billion funding boost for the Internal Revenue Service—a move that would help wealthy households evade taxes and add an estimated $114 billion to the federal deficit.
A 2011 debt ceiling standoff enabled the GOP to impose austerity and also resulted in a historic downgrading of the U.S. government's credit rating, but the country has never defaulted on its debt. Economists warn that doing so would likely trigger chaos in financial markets, leading to millions of job losses and the erasure of $15 trillion in wealth. Knowing that a painful recession is at stake, "many leading Republican lawmakers are demanding that their new House majority use the debt limit as leverage to force the Biden administration to accept sweeping spending cuts that Democrats oppose, creating an impasse with no clear resolution at hand," the Post reported.
\u201cThe debt limit isn't a credit card, it's authorization to pay the bills Congress already ran up without intentionally causing a job-killing recession.\n\nAnd the very first bill Kevin McCarthy's majority passed adds $114 billion to the deficit.\u201d— Rep. Don Beyer (@Rep. Don Beyer) 1673406153
According to CNN, some Republicans—fearful of both a disastrous default and political backlash for attacking popular programs—remain uneasy about using the debt ceiling as a bargaining chip,recalling how then-Rep. Paul Ryan's (R-Wis.) proposal to privatize Medicare "became fodder for attacks that depicted him rolling an elderly lady in a wheelchair off a cliff."
Sen. Elizabeth Warren (D-Mass.), however, has warned that GOP lawmakers desperate to win the White House in 2024 will "blow up the economy" and run ads blaming Biden for it.
The Biden administration on Friday urged Republicans to drop any plans they have to hold the nation's economy hostage, saying it has no intention to conduct debt ceiling negotiations and calling on lawmakers to raise the nation's borrowing limit to preserve its credit.
"We have seen both Republicans and Democrats come together to deal with this issue," White House spokesperson Karine Jean-Pierre told reporters. "It is one of the basic items that Congress has to deal with and it should be done without conditions."
In a joint statement, Senate Majority Leader Chuck Schumer (D-N.Y.) and House Minority Leader Hakeem Jeffries (D-N.Y.) said Friday that "a default forced by extreme MAGA Republicans could plunge the country into a deep recession… Democrats want to move quickly to pass legislation addressing the debt limit so there is no chance of risking a catastrophic default."
As many observers pointed out repeatedly in the aftermath of the midterm elections, Democrats had the power to prevent this high-risk game of brinkmanship from proceeding any further by raising the debt ceiling—or abolishing it altogether—when they still controlled both chambers of Congress.
Despite ample warnings from Warren and other progressive lawmakers and advocacy groups, conservative Democrats refused to take unilateral action during the lame-duck session.
In the absence of congressional action, Yellen—who has supported proposals to permanently eliminate the federal government's borrowing cap as most countries around the world have done—still has the authority to avert an economic calamity by minting a trillion-dollar platinum coin.
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