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Look Around: The Signs of a Trump Recession Are Everywhere
The latest signs from the American heartland are not encouraging. The average voter’s confidence about their economic prospects is falling quicker than at almost any other time on record.
Mar 31, 2025
Once you start looking, the signs of an American recession are everywhere.
The second-hand market is heating up, a classic pre-recession indicator. People are unloading luxury goods. Second-hand clothes apps, such as RealReal, Depop and Grailed, are filling up with designer handbags and sneakers bought during the la-la economy of the pandemic. This always happens before a crash.
You might remember that eBay boomed before the 2008 recession. People panic-sold designer handbags faster than you could say Anglo Promissory Note. Splurges always lead to sell-offs.
It looks like 2025 will be the year the pandemic chickens come home to roost. When the plague hit five years ago this week, governments closed down our economies and rather than impoverish workers who were forced to stay home, national treasuries opened the fiscal and monetary spigots. Government spending soared and interest rates were cut to negative territory. About $15 trillion (€13.85 trillion) of fiscal/monetary sweeties were doled out by the world’s richest governments to protect their stay-at-home electorates. (The governments had no choice; a great depression would have accompanied the plague.)
Investment and speculation took off in a splurge of credit, consumption and debt. As sure as night follows day, the credit cycle rolls and we are about to pay a terrible price for the emergency economics of Covid-19.
In tune with our always-on age, the coming American recession will be live-streamed on Instagram. Every small change in consumer confidence and business sentiment will be videoed, shared, commented on and thus amplified. We are witnessing the TikTok-isation of the business cycle, meaning the economic cycle – previously a slow-moving, deliberate phenomenon – will pick up pace, becoming fitful and immediate.
In the past, it took people time to realise that the economic backdrop was changing. Today, with social media and a US president who behaves more like a near-bankrupt day trader than a long-term investor, our collective time horizons have been slashed from years to months, weeks to minutes. The impact of a slowing economy on investment and spending will be almost instantaneous.
The latest signs from the American heartland are not encouraging. The average voter’s confidence about their economic prospects is falling quicker than at almost any other time on record. The litany of surveys pointing to recession, or more accurately a Trump-cession, not to mention the sell-off in American stock markets, suggests we are on the cusp of something enormous. The incoherence of Trump economics – with its on-and-off tariffs – is making already indebted consumers and businesses even more anxious.
Punters across all income brackets are panicking and consumer confidence is collapsing, although it is richer workers who are most worried. This probably reflects the fact that middle-class Americans are heavily invested in the stock markets, which are back to where they were in September and falling farther. Since Trump was inaugurated, the percentage of voters who are worried about their job has shot up from 30 per cent to close to 80 per cent of all those surveyed. The number of consumers worried that businesses might close has spiked up to the highest level since records began in the middle of the 1980-81 recession.
People’s confidence about where their income will be in a year has plummeted to the lowest level since 2009, right after the Great Crash. Worse still, the average American is now more worried about inflation than at any time since the beginning of the pandemic, when prices shot up because of the shutdown of industry.
This combination of a rapidly weakening economy and fear of inflation points to an old enemy not seen since the 1970s: stagflation, where unemployment and inflation rise together. In such an environment, prices rise at the same time as incomes fall. The main trigger is the broad electorate’s understanding that tariffs are a tax on spending that will raise the price of goods for working Americans.
What is going on in corporate America, the part of the economy that was supposed to be boosted by Trump? Earnings are an important leading indicator, as profit squeezes foreshadow lay-offs and investment cuts. Corporate profits surged in 2021 but have now entered a slower growth phase. By the third quarter of 2024, US corporate profits fell 0.4 per cent quarter-on-quarter, the first decline in years. By late 2024, year-on-year profit growth was 5.9 per cent, down from more than 20 per cent in 2023 – this is a huge slowdown in margins.
All the while the nonsense that is Trump’s economic plan continues to be “sane-washed” by many writers and commentators as if there is some brilliant economic rabbit about to be pulled out of a hat by the sages of Mar-a-Lago. Declaring a trade war on your four biggest trading partners – Canada, Europe, China and Mexico – will simply push up American prices, robbing US consumers.
Tariffs are a way of taking something away from somebody. Trade allows better, cheaper products to come in from abroad, putting manners on local crony businesses. Tariffs protect second-rate local businesses, allowing them to sponge off consumers, flogging second-rate goods when punters could be buying superior imported stuff. In the end, tariffs take from buyers and give money to yellow-pack local sellers who can’t compete in the international market. There’s a reason that low tariffs, which have been reduced continuously in the past 50 years, corresponded with the greatest expansion of the global economy ever seen.
Protectionism is a sign of weakness, not strength. Americans are not being “ripped off”; in fact, they are being enriched by having access to better, cheaper, superior products made by more productive people. Rather than being the beginning of a great new era of American prowess, tariffs are a sign of insecurity and fear, marking the end of the great American century that began after the end of the first World War.
The fascinating thing is that the average “Joe Six Pack” American appreciates this; otherwise, why is he so fearful about the future?
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Economist Says Fed Warning Shows Trump Driving US Economy 'Toward Disaster'
"Launching chaotic trade wars with our allies and gutting Social Security, Medicaid, and other vital programs in order to fund tax breaks for his billionaire donors isn't making life more affordable for working-class families."
Mar 19, 2025
A former Obama administration economic adviser said Wednesday that the Federal Reserve's forecast of increased unemployment, accelerating inflation, and slower growth driven by President Donald Trump's economic policies could portend a return of the "stagflation" that plagued the nation in the 1970s.
The Federal Open Markets Committee, which sets U.S. monetary policy, downgraded its economic outlook for 2025 from an initial projection of 2.1% growth to 1.7%. FOMC also revised its inflation forecast upward from 2.5% to 2.8%.
While FOMC said that "recent indicators suggest that economic activity has continued to expand at a solid pace," the committee noted that "uncertainty around the economic outlook has increased."
Fears of an economic slowdown or even a recession have increased dramatically since Trump took office and imposed tariffs on some of the nation's biggest trade partners while moving to gut critical social programs in order to fund a $4.5 trillion tax cut that will overwhelmingly benefit wealthy Americans.
"Inflation has started to move up now. We think partly in response to tariffs and there may be a delay in further progress over the course of this year," Federal Reserve Chair Jerome Powell said during a Wednesday news conference, at which he said interest rates will remain unchanged. "The survey data [of] both household and businesses show significant large rising uncertainty and significant concerns about downside risks."
The economic justice group Groundwork Collaborative said the FOMC projections show that "Trump is steering our economy toward disaster," while warning of the possible return of stagflation, a combination of low or negative economic growth and inflation.
Alex Jacquez, the chief of policy and advocacy at the Groundwork Collaborative and a former adviser at the White House National Economic Council during the Obama administration, said in a statement that "the Federal Reserve's projections confirm what millions of Americans are already thinking: President Trump is steering our economy toward disaster."
"Voters elected President Trump to lower the cost of living, and instead, they continue to be saddled with persistently high inflation and interest rates," Jacquez continued. "Launching chaotic trade wars with our allies and gutting Social Security, Medicaid, and other vital programs in order to fund tax breaks for his billionaire donors isn't making life more affordable for working-class families. It is, however, a perfect recipe for stagflation."
Trump's economic policies—which some observers believe could be designed to deliberately tank the economy so that the ultrawealthy can buy up assets at deep discounts—have sent consumer confidence plummeting. Meanwhile, recent polls have revealed that a majority of voters disapprove of Trump's handling of the economy and inflation.
The latest FOMC forecast came as the world braces for yet another escalation of Trump's trade war, with the president threatening to implement worldwide reciprocal tariffs starting April 2.
The Organization for Economic Cooperation and Development (OECD) said Monday that Trump's trade war is likely to slow economic growth in the United States and around the world.
"The global economy has shown some real resilience, with growth remaining steady and inflation moving downwards," OECD Secretary-General Mathias Cormann said. "However, some signs of weakness have emerged, driven by heightened policy uncertainty."
"Increasing trade restrictions will contribute to higher costs both for production and consumption," Cormann added. "It remains essential to ensure a well-functioning, rules-based international trading system and to keep markets open."
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By Dragging His Feet to Lower Interest Rates, Powell Hurt the Energy Transition
Rising interest rates were hampering efforts to decarbonize energy supplies and electrify transportation, housing, and other key sectors.
Sep 19, 2024
Federal Reserve Chair Jerome Powell on Wednesday announced that the Federal Open Market Committee is lowering the federal funds rate by 50 basis points, yielding an effective rate of 4.88%. Finally. The Fed should have provided interest rate relief months ago. While this overdue move is welcome, we must reiterate that Powell’s deferral of interest rate cuts has hurt the clean energy transition and inflicted other economic harms.
I wrote at length about this problem in January 2024:
It has become ever more apparent over time that rising interest rates are hampering efforts to decarbonize energy supplies and electrify transportation, housing, and other key sectors. High interest rates have had the dual effect of rolling back productive investment and lowering consumer demand, causing substantial drops in the stocks of major solar, wind, and other renewables-based companies; undermining the deployment of offshore wind projects; delaying the construction of electric vehicle (EV) factories; and slowing the installation of heat pumps.
In effect, Powell is exercising veto power over the Inflation Reduction Act and ruining “the economics of clean energy,” as David Dayen explained recently in The [American] Prospect. President Biden’s signature climate legislation contains hundreds of billions of dollars in subsidies for green industrialization, but repeated interest rate hikes have driven up financing costs enough to outweigh them. As Dayen noted, this is especially the case because the law’s reliance on tax credits requires upfront investment decisions.
Last month, Dominik Leusder explained why rate hikes have been particularly destructive for the green transition. Leusder drew attention to the capital-intensive nature of renewable power projects, which “tend to trade lower operating costs (the input into wind farms and solar plants is ‘free’) against higher (in relative terms) up-front costs.” As he noted:
By one estimate, 70% of the expenditure for an offshore wind farm derives from capital costs, compared to 20% with a gas turbine plant. This means that the vast majority of IRA-related projects require a lot of debt-financed spending up front. As the cost of the debt increases with higher interest rates, so does the levelized cost of energy (LCOE), a measure of the average cost of producing a unit of energy (kilowatt- or megawatt-hour) over the lifetime of the plant. And it does to a greater degree with renewables, the swift adoption of which is premised on them being cheap and profitable for investors.
As a result, a lot of the much-needed expansion in renewables capacity and storage—which is highly time-sensitive given the escalating effects of the climate crisis—is offset until borrowing costs adjust to the point where new projects become viable. What is more, while rates are high, the larger and better capitalized firms can gain a higher market share. Their deeper balance sheets also make it easier to accept higher borrowing costs now in the hope of refinancing these loans at lower rates later. The concentration of market power in the renewables sector would have all the usual implications for consumer welfare and innovation, the latter being seen as key to the energy transition.
His essay goes on to detail the devastating global impacts of the Fed’s monetary austerity, which hits developing countries especially hard, and is worth reading in full. At home, Powell’s maintenance of a higher-for-longer interest rate environment has also exacerbated the housing affordability crisis.
Ironically, raising the cost of borrowing did little to alleviate inflation (the stated reason for the rate hikes). This should come as no surprise. The cost-of-living crisis of 2021 to 2024 wasn’t the result of a wage-price spiral of the kind that neoliberal economists like Larry Summers and Jason Furman said can only be contained through demand destruction (i.e., engineering higher unemployment). Instead, as I wrote earlier this year:
[I]t was fueled by sellers’ inflation, or corporate profiteering, and exacerbated by the elimination of the pandemic-era welfare state. When the onset of Covid-19 and Russia’s invasion of Ukraine upended international supply chains—rendered fragile through decades of neoliberal globalization—corporations bolstered by preceding rounds of consolidation capitalized on both crises to justify price hikes that outpaced the increased costs of doing business. That safety-net measures enacted in the wake of the coronavirus crisis were allowed to expire only made the situation worse.
Given that the recent bout of inflation “is inseparable from preexisting patterns of market concentration, progressives have argued against job-threatening rate hikes… and for a more relevant mix of policies, including a windfall profits tax, stronger antitrust enforcement, and temporary price controls,” I pointed out. “Unlike the blunt instrument that Powell has been wielding ineffectively, those tailored solutions—the last two of which are within the Biden administration’s ambit—have the potential to dilute the power of price-gouging corporations without hurting workers.”
It’s noteworthy that during Powell’s August 2024 speech at the annual gathering of central bankers in Jackson Hole—where he signaled Wednesday’s pivot on monetary policy—the Fed chair excluded any mention of how the consolidation of corporate power contributed to rising prices in his explanation of the latest inflationary period.
This is significant because the Fed’s traditional inflation-fighting tool (i.e., raising interest rates to increase unemployment until demand and prices decrease) is ill-suited to confront our worsening polycrisis. It couldn’t effectively combat the supply shocks and corporate profiteering underlying the 2021-2024 cost-of-living crisis (disinflation occurred without mass joblessness despite Powell’s actions, not because of them). It also cannot solve cost-of-living struggles stemming from the fossil fuel-driven climate crisis.
The Roosevelt Institute’s Kristina Karlsson and Lauren Melodia showed in a 2022 paper that besides warming the planet, fossil fuel-based energy systems are inherently price volatile and a significant driver of inflation. The upshot is that shifting from coal, oil, and gas to renewables can permanently lessen inflationary pressures. Dovish monetary policy can help propel investment in wind, solar, and other green power sources.
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