The chief economic reporter of The Wall Street Journal, known as the “Fed’s megaphone,” Nick Timiraos, wrote in an article published on Monday that U.S. economic policymakers have been focused on achieving a so-called “soft landing” over the past year, which means lowering inflation without triggering an economic recession. Now, a new leadership team is considering adjusting their course, and they themselves acknowledge that this could lead the U.S. economy towards a hard landing.
Timiraos pointed out:
Timiraos mentioned that recent comments made by Trump during an interview, along with subsequent clarifications, caused tremors in the stock market on Monday. Senior government officials, including Secretary of Commerce Howard Lutnick, have recently warned that tariffs could lead to one-time price increases, while Treasury Secretary Scott Bessent hinted that the U.S. economy might need to undergo a reset period to digest the growth driven by government spending and rising asset prices over the past few years.
Analysts believe that the recent shift in attitude from the president and his advisors is a warning sign. The government initially seemed focused on downplaying the risks of rising inflation leading to higher bond yields or blaming the slowdown in economic growth on the Biden administration. However, recent statements indicate that the government does not appear worried about the economic slowdown and may even consider it necessary.
Michael Strain, head of economic policy research at the American Enterprise Institute, stated that this has left the market quite uneasy, “because once it gets to the point of pushing the economy into recession, no one can guarantee it will be over quickly.”
JPMorgan analysts stated on Monday that “extreme U.S. policies” could increase the risk of recession, raising the likelihood of a recession in 2025 from 30% at the beginning of the year to 40%. Goldman Sachs also raised the probability of a U.S. recession within the next 12 months from 15% to 20%, stating that if the Trump administration persists with the current policies, the risk of recession could further increase even if economic data worsens.
Some analysts warned that Trump’s comments may reflect a strategic effort aimed at improving the U.S. bargaining position in trade negotiations with partners, while also pressuring bond investors and the Federal Reserve to be more inclined towards lowering interest rates. In fact, Trump’s impulsive actions on trade and national security issues have prompted authorities in China and Europe to take measures to increase economic stimulus and defense spending.
Analysts noted that the situation over the past two weeks suggests that Trump is unlikely to change his policy direction due to market downturns, which helps Wall Street readjust its expectations. Piper Sandler’s head of U.S. policy research, Andy Laperriere, stated, “Everything he does tells us he is not joking. His beliefs on tariffs are deeply rooted.”
