The U.S. economy has shown signs of slowing, leading to a reassessment of expectations on Wall Street.
While economic growth is moderating, fears of an outright recession remain tempered. Investors and policymakers are now navigating a landscape of softer growth, heightened uncertainty, and wavering consumer confidence.
Economic Growth Moderates
Recent data suggest that the economy's expansion is losing momentum. Federal Reserve Chair Jerome Powell described the economy as "moderating a bit" while maintaining a "solid pace." The Fed’s updated Gross Domestic Product (GDP) forecast for 2025 now stands at 1.7%, down from the previously projected 2.1%. Wall Street analysts have followed suit, with Goldman Sachs lowering its forecast to 1.7% from 2.4%, while Morgan Stanley and JPMorgan have revised theirs to 1.5% and 1.6%, respectively.
The adjustment stems in part from the anticipated impact of President Donald Trump's tariff policies, which are expected to dampen business activity. Despite these revisions, none signal a collapse in economic growth. The current projections suggest a slowdown, not a contraction.
Recent data suggest that the economy's expansion is losing momentum. Federal Reserve Chair Jerome Powell described the economy as "moderating a bit" while maintaining a "solid pace." The Fed’s updated Gross Domestic Product (GDP) forecast for 2025 now stands at 1.7%, down from the previously projected 2.1%. Wall Street analysts have followed suit, with Goldman Sachs lowering its forecast to 1.7% from 2.4%, while Morgan Stanley and JPMorgan have revised theirs to 1.5% and 1.6%, respectively.
The adjustment stems in part from the anticipated impact of President Donald Trump's tariff policies, which are expected to dampen business activity. Despite these revisions, none signal a collapse in economic growth. The current projections suggest a slowdown, not a contraction.
Consumer Confidence Hits a Low
Consumer sentiment, however, paints a more concerning picture. The Conference Board’s latest consumer confidence index dropped to 92.9 in March, the lowest in over four years. The expectations index, a key measure of short-term outlook, slipped to 65.2—a level often associated with impending recessions.
Consumers' financial expectations have deteriorated, with a growing number anticipating lower incomes over the next year. Inflation expectations also surged to 6.2% in March, up from 5.8% in February, further weighing on sentiment. While these indicators have raised alarms, Powell remains cautious in interpreting them, highlighting the historical disconnect between consumer surveys and actual economic behavior.
Consumer sentiment, however, paints a more concerning picture. The Conference Board’s latest consumer confidence index dropped to 92.9 in March, the lowest in over four years. The expectations index, a key measure of short-term outlook, slipped to 65.2—a level often associated with impending recessions.
Consumers' financial expectations have deteriorated, with a growing number anticipating lower incomes over the next year. Inflation expectations also surged to 6.2% in March, up from 5.8% in February, further weighing on sentiment. While these indicators have raised alarms, Powell remains cautious in interpreting them, highlighting the historical disconnect between consumer surveys and actual economic behavior.
Investors Weigh the Risks
Markets have reacted with mixed signals. Major indices showed modest gains, with the Nasdaq 100 ETF (QQQ) up 0.23% and the S&P 500 ETF (SPY) basically unchanged 0.02%.
Investor anxiety remains evident. The popular betting market Kalshi now prices in a 40% chance of a recession within the next year, up from earlier estimates. Yet, some economists argue that fears are overblown. Morgan Stanley’s chief global economist dismissed current recession fears as likely exaggerated, citing January's retail sales dip that reversed with a stronger February performance.
Ultimately, the resilience of the labor market will be key. Unemployment claims and job market stability remain critical indicators to watch. For now, while the pace of growth has slowed, the underlying data suggest that the U.S. economy may be cooling without crashing.
Markets have reacted with mixed signals. Major indices showed modest gains, with the Nasdaq 100 ETF (QQQ) up 0.23% and the S&P 500 ETF (SPY) basically unchanged 0.02%.
Investor anxiety remains evident. The popular betting market Kalshi now prices in a 40% chance of a recession within the next year, up from earlier estimates. Yet, some economists argue that fears are overblown. Morgan Stanley’s chief global economist dismissed current recession fears as likely exaggerated, citing January's retail sales dip that reversed with a stronger February performance.
Ultimately, the resilience of the labor market will be key. Unemployment claims and job market stability remain critical indicators to watch. For now, while the pace of growth has slowed, the underlying data suggest that the U.S. economy may be cooling without crashing.
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