• In the first quarter of 2025, the US economy shrank for the first time in three years.
• That doesn't mean a recession is here.
• Here's what economists say about whether a recession will materialize and its potential effects.

Is a US recession going to happen soon? Economists have varying opinions.

In the first quarter of this year, real US gross domestic product fell for the first time since 2022, partly due to a surge in imports as businesses prepped for tariffs from the Trump administration.

That doesn't mean we're in a recession, and job growth and other measures don't indicate a downturn just yet. It could take a while to see evidence of a recession in the hard data, and the US could even avoid a recession this year.

But consumer sentiment has tanked, and business optimism has dropped amid rising economic uncertainty. Some companies are pulling back on earnings forecasts.

Here's what economists have said about the chances of a recession coming soon and how it would affect Americans.

Claudia Sahm

"We're on a path toward a recession, but it is clear what can get us off that path, and that would be less aggressive policies," Sahm, the chief economist at New Century Advisors, told Business Insider.

The Trump administration has attempted to ease the pressure with steps like issuing a 90-day pause on many tariffs.

"At the end of the day, it'll depend on what these policies are, but I don't think a recession is imminent," Sahm said.

She added that even if there's not a recession in 2025, the economy is likely to slow, and people will have to get used to some adjustments, such as a tougher job market. If there is a recession, she said it would be "not a severe drop-off-a-cliff type of recession."

Paul Krugman

Krugman, a Nobel Prize-winning economist and a CUNY Graduate Center professor, cautioned in a Substack post against reading too much into the latest GDP estimate.

"Remember, measured GDP shrank in the 1st quarter of 2022, and that didn't presage a recession — in fact, that was probably just statistical noise," Krugman said on Wednesday.

Despite that, he warned in a Substack on Tuesday about the "disastrous effect" of the trade war.

"Tariffs always raise prices," Krugman said. "But the sheer size and suddenness of Trump's tariffs, combined with the paralyzing effect of uncertainty about what comes next, are about to deliver a Covid-type supply shock to an economy already sliding into recession."

Torsten Sløk

Sløk, the chief economist at the asset management firm Apollo Global Management, said in a post on April 19 that "tariffs have been implemented in a way that has not been effective, and there is now a 90% chance of what can be called a Voluntary Trade Reset Recession."

A chartbook from Apollo showed that a recession could begin this summer. But Sløk said it's not too late to avoid one. The US could form some kind of agreement with Mexico, Canada, China, and others.

"For Mexico and Canada, there is a unique opportunity for the US to move first and get an agreement where labor, capital, and natural resources can be efficiently used in the North American economy," Sløk said.

Olu Sonola

"For now, we don't have a recession in the cards," Sonola, the head of US economic research at Fitch Ratings, told Business Insider. "That view is predicated on the assumption that tariff rates do not escalate further. A stagflationary shock is a more likely scenario with relatively weak growth and higher inflation; that risk has materially increased since April 2nd."

Diane Swonk

"We have a shallow recession starting in the second quarter and persisting through the fourth quarter," Swonk, chief economist at KPMG, told Business Insider. "The rebound is also weak, barring a major stimulus package, which could see backlash from the bond market."

Swonk sees some early recession indicators flashing red. "The drop in consumer attitudes is in recession territory," she said. "The deterioration in job security we are seeing is particularly worrisome."

Some Americans could be more affected by a recession than others.

"Inequality has worsened, with the top 10% of earners accounting for nearly half of all consumer spending," Swonk said. "Low- and middle-income households lack the cushion on savings triggered by COVID-era stimulus, which leaves them the most vulnerable to those losses."

Cory Stahle

Stahle, an economist at the Indeed Hiring Lab, said in commentary Tuesday after new job openings and turnover data that "fears of an impending recession have drowned out the calls for a soft landing. Since economic decisions are often shaped by expectations, it's possible that conditions may worsen in the coming months if people start behaving like they are in a recession. Softening some of the recent trade policy changes may ease some business concerns, but it may already be too late."

Eric Rosengren

Rosengren, the former president of the Federal Reserve Bank of Boston and a visiting scholar at MIT, recently told Yahoo Finance there's a 50% or 60% chance of a recession, higher than earlier this year.

"Tariffs can both slow down growth, which causes higher unemployment, and they can also raise prices and potentially start affecting the underlying rate of inflation," he said.

Dana Peterson

Peterson, the chief economist at The Conference Board, told Business Insider in mid-April that a recession isn't The Conference Board's base case, but it expects weakening growth, faster inflation, and increasing unemployment.

"The US actually is coming off of very strong fundamentals," Peterson said, adding that many people are working and there had been "sizable contributions from government spending on the industrial policies."

David Kelly

"The most likely scenario, at this stage, is that having lingered at the edge of recession, the economy slides into a shallow one later this year," Kelly, the chief global strategist at J.P. Morgan Asset Management, said in a note on Monday.

However, a mild recession this year could spur the government to take action, and Kelly said it "could set the stage for moderate fiscal stimulus in 2026, which, while further worsening the deficit, should be enough to restart economic growth. The Administration would likely take note of the damage done by tariffs and extreme reductions in immigration and federal government employment and could soften these policies."

Desmond Lachman

Lachman, a senior fellow at the conservative-leaning think tank American Enterprise Institute, said in an op-ed on April 21 that there are several reasons to expect a US recession.

"Tariff policy-induced economic uncertainty now delays investment and consumer spending; a tax increase is hitting households in the form of higher prices; equity and bond prices are being pummeled by a loss of faith in American economic exceptionalism; and the upending of the rest of the world economy will certainly have spillover on the U.S. economy," Lachman said.

Mark Hamrick

Hamrick, a senior economic analyst at Bankrate, told Business Insider that there's a risk that a contraction continues, but it's not guaranteed.

"At issue is whether the consumer continues to power the economy and whether they'll have the wherewithal and desire to remain engaged as purchasers," Hamrick said. "With imports being sharply curbed and prices likely set to rise, their ability and desire to buy, not dissimilar from the supply chain disruption days of COVID, will be watched closely."

Hamrick said there's "a difference between the official declaration of a recession and how consumers can feel, as affirmed by the fact that many consumers have incorrectly associated their reduction in buying power in the face of elevated prices with a recession."

• Ray Dalio says the global order is "on the brink," in part due to Trump's tariff policies.
• Companies worldwide are already reducing US ties, preparing for long-term decoupling, he said.
• Dalio warns the US may be bypassed as nations form new alliances and trade routes around it.

Billionaire investor Ray Dalio is once again sounding the alarm: the international order is on the verge of breaking point, and President Donald Trump's aggressive use of tariffs is accelerating the unravelling of global trade and capital flows, according to the billionaire investor.

In a sweeping statement on Monday posted to X, the founder of Bridgewater, the world's largest hedge fund, issued a warning to those who think the impact of US tariffs can be mitigated.

"I am now hearing from a large and growing number of people who are having to deal with these issues that it is already too late," Dalio, who has made similarly bombastic assertions before, wrote.

In early April, Trump announced a series of steep tariffs on dozens of countries, including longtime allies, but then paused the highest duties for 90 days, keeping a 10% baseline rate in place for most countries, except the 145% tariffs on most imports from China.

US Treasury Secretary Scott Bessent defended Trump's trade policies in an ABC News interview last Sunday, calling his back-and-forth tariff strategy a way to create "strategic uncertainty" and gain "leverage" in trade negotiations with world leaders.

But for Dalio, the impact is destabilizing rather than strategic.

"Many exporters to the United States and importers from other countries that trade with the US are saying they have to greatly reduce their dealings with the United States, recognizing that whatever happens with tariffs, these problems won't go away," Dalio said.

Dalio suggested this could cause a readjustment of global markets around the US, as they find trading alternatives.

He also returned to his long-term criticism of US's debt-fuelled consumption model and questioned its sustainability. "Assuming that one can sell and lend to the U.S. and get paid back with hard (i.e. not devalued) dollars on their U.S. debt holdings is naive thinking," he wrote.

Dalio warned, "We are on the brink of the monetary order, the domestic political and the international world orders breaking down due to unsustainable, bad fundamentals that can be easily seen and measured."

He couched this statement saying today's trajectory is the "contemporary version" of historical events that have led to major power shifts in the past. The argument aligns with his past theses on the historical cycles of world order, and supposedly that of his new book — which he references in the post on X.

In a LinkedIn post on Thursday, Dalio said he dreamed of US-China trade negotiations leading to a "beautiful rebalancing" — an idea he reiterated in his statement on X.

He wrote that investors and policy makers should turn away from reactive positions on daily market changes, and instead focus on planning for "big fundamental changes" to forge a better future.

Bridgewater Associates' three co-chief investors issued a similarly dramatic caution in their latest letter to clients which they included an excerpt of in their company newsletter late last week.

They warned a "new macroeconomic and geopolitical paradigm" was roiling markets and potentially reshaping the global economic status-quo.

• Baby boomers will soon open their IRA statements and may damage their retirement funds.
• President Donald Trump's tariffs threaten further pain, finance professor Peter Ricchiuti told BI.
• He said tariffs are "prosperity killers" that drag down stocks and the economy.

Many people could be left disappointed when they open their IRA statements in the coming days — and President Donald Trump's "Liberation Day" tariffs threaten to make things even worse.

The S&P 500 fell 5% in the first three months of 2025, marking its worst quarter since 2022, while the Nasdaq Composite slumped 10% as stocks like Tesla plunged 36%.

Those declines have taken a bite out of many people's investments in the stock market, and could disrupt their retirement plans if they continue.

"For the small investor, the decline in value will be devastating, particularly for retired baby boomers" who draw their incomes from their retirement accounts, Peter Ricchiuti, a senior professor of finance at Tulane University's Freeman School of Business, told Business Insider.

The sell-off is partly in reaction to Trump's topsy-turvy tariffs in recent weeks, which have made it "impossible" for business owners to make decisions, Ricchiuti said.

The former investment manager, who once oversaw Louisiana's $3 billion portfolio as the assistant state treasurer, said that running a company has become a "game of Whack-A-Mole" because everyone is trying to guess which industry will be hit next.

Tariffs have landed

Trump unveiled tariffs of at least 10% on imports from all foreign countries on Wednesday, with higher rates for countries with a large trade deficit with the US. Goods from China, the number-two exporter to the US after Mexico, will be subject to a 54% tariff from April 9 if nothing changes.

The news sent S&P futures down more than 3% in premarket trading on Thursday, as key constituents Tesla and Nvidia tumbled 8% and 6% respectively.

Tariffs push up costs for companies and prices for consumers, while uncertainty discourages hiring, expansion, and spending. Those forces slow corporate earnings growth, eroding valuations and sending stocks lower, Ricchiuti said.

Strategists at Goldman Sachs cut their S&P 500 forecast last week, citing the incoming tariffs as their main rationale. They predicted the index would decline a further 5% this quarter and gain 6% over the next 12 months, down from 0% and 16%, respectively.

One pressing concern is that Trump ratcheting up import taxes will cause countries around the world to retaliate by imposing reciprocal tariffs on imports from the US. Ricchiuti said that's one reason why tariffs never succeed in leveling terms of trade and instead act as "prosperity killers."

During Trump's first term, he imposed sweeping tariffs on goods ranging from steel and aluminum to solar panels and washing machines, and broad-based duties on imports from China. The tariffs led to material price increases and reductions in Americans' real income, studies have found.

Anxiety abounds

Another worry for investors and everyday Americans alike is that if tariffs lead consumers to cut back on spending and companies to retrench, overall economic growth could suffer. Ricchiuti flagged there is mounting concern on Wall Street that Trump's trade battles will "cause a recession or even the much-feared stagflation."

BlackRock CEO Larry Fink described the national mood in his yearly letter on Monday.

"I hear it from nearly every client, nearly every leader — nearly every person — I talk to: They're more anxious about the economy than any time in recent memory," he wrote.

Another wave of tariff chaos is now threatening to hit stocks that have already retreated. The timing is terrible for boomers living off their nest eggs, who could see their retirement funds dwindle if they're pulling money out at the same time their stock holdings are falling in value.

Ricchiuti bemoaned that the economy was on a good path with falling inflation and record corporate earnings and stock prices ahead of Trump's inauguration.

"The worst part of all this is that these economic wounds are self-inflicted," he said.

• Leading researcher Meredith Whitney shared the trends she has her eye on this year.
• Consumer spending could surge, sparking a rebound for beaten-down retailers.
• In real-estate, a key trend that Whitney had highlighted is now no longer likely.

Nearly two decades after her prescient warnings about the financial crisis, Meredith Whitney remains one of the more widely followed research analysts in markets.

Although no one's calls are always correct, Whitney is known for bold, outside-the-box thinking that gets gears turning — like why young people could get a leg up in the housing market, or why remote workers secretly working two jobs were at risk of getting caught.

Business Insider recently caught up with the "Oracle of Wall Street," who shared in an interview the three under-the-radar economic trends she's watching most closely in 2025.

1. Consumer spending reaccelerates

After countless hours of studying the US economy, Whitney's highest-conviction call this year is that consumer spending will strengthen across income strata and keep growth humming.

"The takeaways are clearly that consumer spending strength is going to broaden this year, so that means it will accelerate," Whitney said.

In recent years, Whitney's research suggests that spending has been disproportionately driven by higher-income consumers and the mid-20s to late-30s cohort, whom she affectionately calls "avocado toasters." Whitney noted last May that their young people's spending far exceeds that of baby boomers, and she now estimates their discretionary spending is five to six times higher.

Contrary to what some might suggest, these whippersnappers may not be being irresponsible. Instead, Gen Zers and millennials have been largely shut out of the housing market due to high mortgage rates and may be making up for it with retail therapy — or simply because they can.

"The avocado toasters who don't own homes — this is the 24- to 38-year-olds who don't own homes — have more discretionary spend, because it's gotten so expensive over the last three years to own a home with rising homeowners' insurance, property taxes, homeowners' association fees," Whitney said.

Besides being unburdened by expensive mortgage payments, many young people are finding creative ways to team up and save money. Whitney pointed out that password sharing is the norm for younger generations, and even those who don't snag log-ins for streaming services or YouTube TV can stay on their parents' phone plans for $10 a month instead of $50 or more.

Other consumers are in a much different spot. Lower-income consumers have felt the highest inflation in a generation most acutely. In fact, Whitney said last spring that households making between $50,000 and $70,000 a year could only afford to save 0.3% of their post-tax income.

"What has been clear is that the 52% that have been living paycheck to paycheck — over 50% of the households — are really struggling," Whitney said.

Consumers could make a financial comeback this year if inflation fades and interest rates inch down, Whitney said. And while some economic observers are anxious that Trump's tariffs could cause prices to reaccelerate, Whitney didn't cite that as a major near-term risk.

2. Dollar-store sales boom

A long-awaited rebound for consumers, including those in the lower-income bracket, could spark a turnaround for beleaguered dollar stores and other struggling retailers, Whitney said.

"The dollar stores and all the discounters — and I'll throw Target into the mix; it's neither — will have a great 2025 and beyond," Whitney said. "They've been beat up for a number of reasons, but one of them has been that their primary customer really had a hard landing after COVID stimulus checks ended."

As Whitney noted, pandemic-era government aid and inflation were major tailwinds for dollar stores. Consumers of all income types flocked to Dollar Tree and Dollar General for their rock-bottom prices, pushing their shares to record levels. Dollar Tree's stock even doubled in the five months from late September 2021 to mid-April 2022.

But ever since, Dollar Tree and Dollar General have been dead money, with shares down 57% and 72%, respectively, from all-time highs. Inflation has become a major headwind by eating into profits on dirt-cheap products. Dollar Tree's earnings have been hammered, and Dollar General's operating income growth has been negative for seven straight quarters.

Dollar Tree and Dollar General's standing among investors went from bad to worse early last fall after alarming earnings reports. Both companies lost about a third of their market value as they slashed full-year guidance, blaming consumer spending weakness among income cohorts.

Whitney said she became bullish about dollar stores shortly after, and it's not because she was bargain-hunting. Instead, her research indicates that consumers may get more breathing room.

Since last summer, Whitney said property owners have increasingly taken out lines of credit from their home equity, which is a relatively cheap way to borrow money. Consumers can take this cash and use it to pay down their credit-card statement and other costlier bills, she added. Armed with money in their pocket and lower card balances, households can spend more freely.

"What I expected was this to have almost like a trickle-down effect," Whitney said. "It's happened a lot faster than I would've thought. So if you look at the same-store sales year on year, they've already picked up dramatically with the dollar stores and with Target. And when the retailers report, I think the investors will be surprised by how strong the results are."

3. Older homeowners stay in place

Whitney's most surprising take is one that's the opposite of what she believed a year ago.

The Oracle of Wall Street had spoken for years about a so-called "silver tsunami," reasoning that older homeowners would flood the housing market by listing their homes en masse. This would send property values plunging and allow younger buyers to swoop in at steep discounts.

But after examining more data, Whitney recently said that her theory is no longer likely.

Although the US population is still steadily aging, the researcher now expects older people to "age in place" instead of moving to ranchers, retirement communities, or nursing homes, which can be very expensive. Only about one in eight seniors can afford assisted living without tapping into their assets, Whitney noted, citing a 2023 Harvard study on housing older adults in the US.

Her change of mind comes as older property owners are seemingly deciding not to move. Instead, seniors are taking out lines of credit to renovate their homes. That could mean putting bedrooms in on the ground floor, adding walk-in tubs, or installing movable stairs, Whitney said.

If grandpas and grandmas across the country stay put, there will be fewer houses for younger buyers to choose from. That could be disastrous, if new home inventory wasn't rising like it is.

"Their best chance of owning a home is with new homes — not existing," Whitney said of younger homebuyers.

Millennials and Gen-Zers might not get the revenge over owners that Whitney thought was possible last year, but they'll likely be better off than in the least affordable market of their lives.

• Russia's latest economic figures show it had a strong 2024.
• But economists are suspicious, believing its data don't stand up to scrutiny and is inflated.
• This week, Trump threatened high tariffs and more sanctions if Russia doesn't end the Ukraine war.

Economists are questioning Russia's latest economic data, as they say recently published and cited figures don't seem to match its real economic predicament.

During an economic meeting on Wednesday, President Vladimir Putin claimed that 2024 was a "strong year" for Russia.

He cited what he described as a manageable 1.7% deficit, and a 26% increase in non-oil and gas revenue to 25.6 trillion rubles, about $257.9 billion.

A day earlier, Russia's finance ministry released a report saying that the country's budget revenue in December was over 4 trillion rubles, or about $40 billion — a 28% increase compared to December 2023, and the highest level recorded since 2011.

However, some are growing skeptical of the data shared by Russian authorities.

On a panel at the World Economic Forum in Davos on Wednesday, Elisabeth Svantesson, the finance minister of Sweden, said Putin "wants us to believe that Russia's economy is strong" and that Western sanctions aren't effective.

"But when you dig a bit deeper, you'll see that's not the case," she said, pointing to a report commissioned by the Swedish government.

That analysis, published in September by the Stockholm Institute of Transition Economics, found mounting imbalances and an inconsistent policy mix in the Russian economy — including massive stimulus and subsidies amid record-high interest rates.

The report also warned that official statistics like GDP growth and inflation rates were tainted by the Kremlin's propaganda machine and "manipulated to support the narrative that the Russian economy is stable."

"It's very clear that Russia's economy isn't as strong as Putin wants us to believe," Svantesson said, pointing to capital flight and nighttime satellite photos as potential evidence.

Iikka Korhonen, head of research at the Bank of Finland Institute for Emerging Economies, made a similar statement.

Korhonen said that Russia has largely stopped publishing its foreign trade data and fiscal data, in sharp contrast to before its full-scale invasion of Ukraine in 2022.

"Of course, Putin will put a positive spin on all pieces of data," he said.

As such, the published data may be correct, he added, "but they always leave out negative data and important context."

Economists on the MMI Telegram channel, a Russian discussion group, also highlighted a December Bank of Russia report on the country's balance of payments.

On Wednesday, the group said that Russia's fiscal surplus dropped last month to its lowest level since August 2020, at an estimated $5.6 billion.

While the Bank of Russia described the fiscal surplus as "stable," the MMI Telegram channel said $5.6 billion was not enough to cover the deficit in trade in services, repayment of foreign debt, and demand for foreign assets from citizens and businesses.

It added that the falling fiscal surplus was also piling pressure on the ruble, which fell to a two-year low against the dollar in November.

In a note on Thursday, TsMAKP, a think tank linked to the Russian government, highlighted what it said appeared to be inconsistencies and miscalculations in Russia's official economic data.

It said that while reported GDP growth of 3.8-4% in 2024 appeared strong, real production activity has stagnated since the third quarter of 2023 and investment estimates appeared inflated.

At the same time, the Institute for the Study of War, a Washington DC-based think tank, has questioned Russia's finance ministry report, which said that Russia's revenue hit a record high of about $40 billion in December.

It said Russia's figures failed to account for its unsustainable defense spending, high rates of inflation, a widening deficit, and the depletion of its sovereign wealth fund.

Anders Åslund, a Swedish economist and former fellow at the Atlantic Council, said this month that Russia's financial reserves could run out before the end of the year.

Not everyone is so down on the Russian economy.

Vasily Astrov, an economist at the Vienna Institute for International Economic Studies, acknowledged indicators showing a slowdown in Russia's GDP growth and high inflation, but said that Russia's defense spending of 6% of its GDP could be sustainable for "quite some time."

Exiled Russian economist Vladislav Inozemtsev wrote in November that Russia's war economy isn't in imminent danger of collapse.

And Alexander Kolyandr, a financial analyst and non-resident senior scholar at the Center for European Policy Analysis, told BI in an interview last month that with all "extraordinary" factors remaining unchanged, he didn't see any economic "collapse or meltdown" in Russia.

Even so, the US tightened sanctions against Russia earlier this month, and on Wednesday, President Donald Trump threatened high tariffs and more sanctions if it doesn't end the war.

Anders Olofsgård, a deputy director at the Stockholm Institute of Transition Economics, said oil and gas exports are by far the most important lubricant of the Russian economy, so global prices, the discount on Russian oil, and the ability to shut down Russia's shadow fleet are key.

Right now, however, Roman Sheremeta, an associate professor of economics at the Weatherhead School of Management at Case Western Reserve University, said that Putin "needs to show that he can continue this war, that his economy is capable of sustaining the Kremlin war machine for the next 2-3 years."

Otherwise, he said, Putin's "future negotiation position will be drastically undermined."

• UK markets are a mess with yields on government bonds at historic highs and the pound tanking.
• Worries about inflation, public finances, and sticky interest rates are behind the chaos.
• Here's a breakdown of what's going on and what it means for Britain.

UK markets are roiling as wary investors prepare for trouble. Here's a closer look at what's happening — and what it means for the British people and their beleaguered economy.

Gilts and pounds

Yields on UK government bonds, or "gilts," have recently surged, while the pound has sunk against the dollar and lost ground versus the euro.

The benchmark 10-year gilt yield jumped from about 4.2% at the start of December to 4.9% on Monday, its highest level since 2008. Over the same period, the 30-year gilt yield leaped from around 4.7% to almost 5.5% for the first time since 1998.

Meanwhile, the pound weakened to a 14-month low against the dollar on Monday, with £1 worth $1.21 compared to $1.34 as recently as September. Sterling also revisited its November low against the euro with £1 worth 1.19 euros.

Prices and rates

Gilt yields have climbed and the greenback has gained against the pound because of the UK's bleak economic outlook.

Official estimates show the economy failed to grow in the third quarter of 2024. In late November, Goldman Sachs economists forecast a meager 1.2% growth rate for 2025, below the Bank of England's 1.5% estimate.

Annualized inflation spiked to a multi-decade high of more than 11% in October 2022, spurring the BoE to raise its base interest rate to 5.25% by August 2023 — a huge increase from virtually zero going into 2022.

Inflation has cooled significantly from its peak but accelerated to 3.5% last November, far outpacing the BoE's target rate of 2%. The central bank has trimmed its base rate to 4.75%, but signs of stubborn inflation have cut the chances of a flurry of further cuts this year.

President-elect Donald Trump's plans to impose tariffs and cut taxes once he enters office have also stoked global inflation fears, eroding hopes for rapid rate cuts in the UK and other countries.

Steeper interest rates encourage saving over spending and investing and make borrowing more expensive, which can ease upward pressure on prices but can also temper growth.

Public purse pressure

Investors are worried the UK government is overspending. It borrowed about £113 billion in the eight months through November 2024, raising the national debt to about £2.8 trillion — more than double the level before the financial crisis of 2008.

Rachel Reeves, the Chancellor (finance minister), has signaled she may rein in spending by making greater cuts to public services — but tightening the purse strings threatens to further weaken growth.

Concerns about persistent inflation, the public finances, and stagnation have hammered market sentiment toward the UK economy. Investors now demand a higher return to hold government debt, which has pushed up gilt yields.

Flight to safety

The prospect of higher rates for longer should benefit the pound because the currency's holders can expect to earn more interest. But that effect is being outweighed by the dollar's strength, underpinned by similar concerns in the US of stubborn inflation, sticky rates, and rising Treasury yields. Investors are flocking to the greenback as a haven asset, heaping pressure on the pound.

"Bond market turbulence, fears over unsustainable debt, and a lack of investor confidence in Britain's long-term prospects are all combining to pull sterling lower," Nigel Green, CEO of deVere Group, said in a note.

"The combination of a robust dollar and a weakening pound is accelerating the capital flight from sterling. Investors are turning to safer currencies and assets, as the UK appears increasingly fragile in this turbulent environment."

Flashes of the past

The upswing in gilt yields and the pound's retreat against the dollar evoke the crisis sparked by then-Prime Minister Liz Truss and Chancellor Kwasi Kwarteng's mini-budget in September 2022.

The tax cut plans spooked investors with the prospect of reckless government borrowing, resurgent inflation, and interest rates staying higher for longer.

With some pension funds on the brink of collapse, the BoE stepped in to shore up markets and calm the situation. The chaos dissipated but Truss resigned a few weeks later.

This time, government officials have indicated that gilt markets are functioning normally and emergency intervention isn't warranted.

Prime Minister Keir Starmer said on Monday that the government would continue to comply with its fiscal rules and reiterated his confidence in Reeves.

Budget pressure

The UK government funds itself partly by issuing gilts, so higher yields mean it has to pay more interest to bondholders. That raises its borrowing costs and eats into its tax revenue, leaving it with less money to spend on public services.

"The Chancellor already had limited wiggle room and the risk is that she may have to either cut spending or raise taxes," Susannah Streeter, head of money and markets at Hargreaves Lansdown, said in an emailed note.

Ipek Ozkardeskaya, a senior analyst at Swissquote Bank, made a similar point in an emailed note: "Rachel Reeves is losing her fiscal headroom and her manoeuvre margin with every basis point rise in borrowing costs, and that muddies the UK's growth outlook."

Feeling the squeeze

Higher gilt yields mean steeper interest payments for households and businesses too, tempering the economy's growth prospects further.

Moreover, a weaker pound makes imports more expensive. That could fuel inflation, curb growth, pinch businesses that rely on foreign goods, and turn the screw on households already mired in a cost-of-living crisis.

Many consumers are struggling after sharp rises in the cost of food, fuel, housing, and other essentials since the pandemic — especially when they're paying more for their mortgages, credit cards, and other debts due to rate rises.

"Inflationary pressures remain persistent and elevated, while at the same time the growth backdrop, exacerbated by the recent budget, is deteriorating and straining government finances further," Mark Dowding, BlueBay chief investment officer at RBC Global Asset Management, said in an emailed note.

"Moreover, households will face rises in energy costs, water bills and council tax in April, adding to the squeeze in consumer budgets."

Savills recently estimated that nearly 700,000 UK homeowners face higher mortgage costs when their fixed-rate deals ended this year. Many hoped the BoE would steadily cut its base rate and mortgage rates would decline.

"But now, the newly elected Labour government, which promised to rescue the country, improve finances, and boost growth, faces its own reckoning," Ozkardeskaya wrote.

"To deliver on its ambitions, it needs market support — a resource proving elusive. Without it, borrowing costs will spiral higher, forcing tougher choices: more taxes, less spending, and weaker growth. And none of that bodes well for the pound."

• There are a handful of bullish forces headed for markets and the economy next year.
• Goldman Sachs said there are five factors providing a tailwind for the market next year.
• Those include stronger growth, more rate cuts, and lower inflation.

Investors feeling nervous about markets and the economy have a number of reasons to cheer up, with several bullish factors set to keep the rally going next year, according to Goldman Sachs.

Economists at the bank made several predictions for markets and the economy in 2025, some of which buck current expectations.

Some investors are starting to sour on next year's outlook, with over 34% of traders saying they were bearish on stocks over the next six months, according to the AAII's latest investor Sentiment Survey.

Meanwhile, the Conference Board's Expectations Index, a measure of how consumers feel about various parts of the economy, dropped to near-recessionary levels in December.

Yet, a handful of factors could keep the economy going strong or even stronger in 2025.

Here are five bullish calls the bank has made for the coming year.

1. The economy could grow more than expected

The US economy could expand even faster than investors are currently expecting. Goldman Sachs forecast GDP to grow 2.4% year-over-year by the fourth quarter of 2025, above the consensus estimate of 2% growth.

That increase will largely be fueled by strong consumer spending. Americans, bolstered by a strong job market and increased wealth from holding stocks, will likely ramp up their spending by 2.3% on a yearly basis in 2025, Goldman predicted, on par with consumer spending growth seen over the last two years.

2. Business investment will take off

Investment by businesses will probably far surpass expectations, Goldman said. The bank predicted that private investment in the economy would climb 5% year-over-year in the fourth quarter, above consensus estimates of around 3% growth.

"While the factory-building boom subsidized by the Inflation Reduction Act and CHIPS Act will slow, spending on equipment for those new factories and for artificial intelligence, the reinstatement of tax incentives, rising confidence, and lower short-term borrowing rates for small businesses should fuel roughly 5% growth in business investment," economists said.

3. The job market will strengthen

The employment picture could look a lot stronger in 2025. Unemployment will likely fall back to around 4% by the end of 2025, Goldman predicted, slightly lower than the 4.2% jobless rate recorded in November.

"Job openings remain high and strong final demand growth should keep labor demand growing robustly. Meanwhile, the surge in immigrant labor supply that the labor market struggled to fully absorb this year has already slowed sharply and will fade further," the note added.

4. The Fed will cut rates more than expected

Goldman Sachs is expecting the Fed to cut rates three times next year, with decreases to the fed funds rate coming in March, June, and September. That reflects a slightly more aggressive pace of easing than what investors and Fed officials themselves are expecting, with the latest projections showing the central bank eyeing two rate cuts for 2025.

"Both our baseline and probability-weighted Fed forecasts are more dovish than market pricing, which reflects both our confidence that the underlying inflation trend will continue to decline and our view that the risks for interest rates from policy changes under the second Trump administration are more two-sided than widely assumed," the bank said.

Economists have said that some of Trump's proposed policies, like his plan to levy steep tariffs, could cause inflation to spike and interest rates to rise. Trump implemented tariffs during his first term as president without a significant price increase, but his tariff plan this time around is much broader, explaining the difference in inflation forecasts.

5. Inflation will keep cooling

Price growth, though, will likely continue to decline, Goldman predicted. The bank forecast core personal expenditures inflation —the Fed's preferred measure that excludes volatile food and energy prices — to fall to 2.1% by the end of next year, down from the 2.8% growth recorded in November.

The decline will be partly driven by "catch-up inflation" ending next year, the bank said, referring to how real inflation in the economy often lags behind the official statistics. Areas that typically lag, like car insurance and rent prices, have started to cool in recent months.

Wage growth, another factor that influences inflation, is also starting to cool, which should help lower price growth. Wages grew just 3.9% over the last year, down from the recorded 4.7% in 2023, according to Goldman Sachs data.

Goldman remains solidly bullish on stocks going into the new year. Previously, the bank's strategists predicted the S&P 500 could rise to 6,500 by the end of 2025, implying 10% upside from current levels.

• Small-business optimism may rise after Trump's election win, potentially boosting hiring intentions.
• Optimism surged post-2016 election, with small businesses planning to hire more employees.
• Improved labor market conditions could enhance consumer sentiment and boost wages.

Welcome to the vibe-spansion.

Yes, that's a portmanteau of vibes and expansion, and it's the upbeat version of its better-known cousin, the vibecession.

The term vibecession, a play on the word recession coined by content creator Kyla Scanlon, has been used to describe how people have felt about the economy for the last few years. While the National Bureau of Economic Research hasn't declared an official recession during that time, as there's been no significant decline in employment and consumer spending, inflation and a floundering job market have left consumers feeling downcast about the economy.

That could be about to shift.

That's because the optimism of small-business owners, and their intentions to hire more employees, are probably set to rise after Donald Trump's win in the presidential election earlier this month, with the president-elect promising to cut taxes and regulations.

"Small business owners lean Republican," said Oliver Allen, a senior US economist at Pantheon Macroeconomics, in a November 12 note.

Numbers from the National Federation of Independent Businesses' November survey aren't in yet, but the 2016 election period saw a substantial shift in small-business optimism. Even with higher interest rates and a slightly slowing economy, one would expect some sort of positive jolt to outlooks, experts say.

"After Donald Trump was elected the 45th President in November 2016, the National Federation of Independent Businesses (NFIB) small business optimism index skyrocketed. It was truly a reflection of 'animal spirits' coming to life and this behavior is likely to be repeated," Goldman Sachs' Chief US Equity Strategist David Kostin wrote in a November 18 client note. "We expect an improving small business operating environment will boost the sentiment and spending of SMBs in 2025 and lift the earnings and valuation of stocks with revenues tied to that spending."

Admir Kolaj, an economist at TD Economics, agrees.

"Although the economy is on different footing now and facing a different set of challenges, we anticipate we're likely to see an improved mood among small business owners to cap off the year," he said in a November 12 note.

NFIB data shows that optimism bleeds through to concrete actions. Hiring intentions also jumped after the 2016 election, and they have tracked closely with actual job openings.

Of course, job openings had already been on the rise in the years leading up to 2016, while they are falling today. But the expected jump in optimism, and the presumptive knock-on effect in hiring intentions, could turn that around.

With inflation having cooled off and interest rates starting to fall, more job opportunities flooding the market could be what consumers need to feel better about the economy.

When there are more jobs available, the labor market becomes more employee-friendly, and workers are able to command higher wages. Higher pay could help consumers feel like they're finally able to get ahead, assuming it doesn't fuel higher inflation again with many of the pandemic supply chain hurdles now out of the way.

Workers will also feel less trapped in their current jobs when openings are more abundant, according to Daniel Zhao, lead economist at Glassdoor. About two-thirds of workers feel "stuck," he said. With openings falling since 2022, the number of quits has dropped dramatically.

"Once the job market heats up again, that will open a relief valve to release the bottled up pressure, by giving workers the option to quit in favor of better options on the market," Zhao wrote in a November 19 report. "For the time being, employers may be benefiting from unusually low turnover rates, but they shouldn't be complacent—a wave of revenge quitting is on the horizon."

The turnaround may not be easy. Unemployment has been trending upward, and the tough credit environment for small businesses may mean that continues. Uncertainty stemming from Trump's tariff proposals could also hamper hiring and business investment.

But the idea that a rosier outlook from small-business owners could boost labor conditions is plausible. The past data is there to support it. Whether the post-election bump in optimism will be enough to spark a hiring spree and improve consumers' attitudes this time around will become evident in the months ahead.

The vibe-spansion could be upon us.

• Nouriel Roubini thinks higher inflation and slower growth are coming on the back of Trump's policies.
• He pointed to Trump's plans to levy steep tariffs and deport millions, which could stoke price growth.
• The pace of inflation could nearly double to 5% in the coming years, Roubini speculated.

Trump's policies are raising the risk for a handful of troubling economic consequences, according to one of Wall Street's most pessimistic forecasters.

Nouriel Roubini — also known as "Dr. Doom" for his bombastic and frequently bearish takes on the economy — said he believes some of Trump's policies could raise prices and slow growth in the US. That could involve inflation rising as high as 5% in the coming years,

he said speaking to Bloomberg on Wednesday, about double the current pace of price growth in the US.

Roubini said interest rates could also rise due to Trump's economic agenda. He predicted that long-end bond yields, which partly reflect interest rate expectations in the economy, could reach as high as 8%.

"Some of the economic policies may lead to higher economic growth," Roubini said, pointing to Trump's push to loosen regulation and slash the corporate tax rate. "But unfortunately, many of the other policies have the implication of higher inflation and lower economic growth."

Roubini pointed in particular to Trump's tariff plan, with the president-elect vowing to levy steep tariffs on goods from Mexico, Canada, and China, and a 10%-20% blanket tariff on most US imports. Experts have said the cost of tariffs could be passed onto buyers, with some businesses already floating future price increases.

Trump has also promised to slash corporate taxes and eliminate taxes in other areas, such as income from tips, overtime, and Social Security benefits. Roubini suggested that could spell trouble given the overarching picture of the US debt, as debt is inherently inflationary.

Trump's agenda could raise the national debt by as much as $15.5 trillion from 2026 through 2035, according to an analysis from the Committee for Responsible Federal Budget.

Trump's plan to carry out mass deportations could also impact the outlook for inflation and growth, Roubini noted, given that immigration has bolstered the workforce and helped tame inflation.

"So definitely mass deportation is stagflationary," he added.

Roubini has repeatedly warned that Trump's second term in office could raise the risk of stagflation, a scenario involving stubborn prices, sluggish economic growth, and steep unemployment. Some analysts describe the situation as even worse than a recession due to the chaos that unfolded the last time the US was in the midst of a stagflationary crisis.

Other forecasters have also warned of the potential for higher inflation in Trump's second term. Deutsche Bank analysts floated a potential inflation increase in 2025, adding it was possible the Fed may not lower interest rates to keep high prices in check.

Trump, though, has repeatedly disputed the idea that his policies are inflationary and said he would lower prices for Americans. He enacted tariffs in his first term as president without a significant inflation increase, but experts say that his policies this time around are far more wide-reaching, explaining the difference in inflation forecasts.

"Trump will once again cut taxes and unleash American energy to lower prices on groceries and other goods when we send him back to the White House," Taylor Rogers, a spokesperson from the Republican National Committee, previously told BI.

• Trump's plans to deport millions of immigrants could exacerbate America's demographic challenges.
• The US birth rate has been falling, which economists say could hobble the labor market and economic growth.
• Trump's plan could result in an older population and fewer workers, economists told BI.

Donald Trump's plan for a sweeping immigration crackdown involving mass deportations has been described as potentially inflationary, but economists say it could exacerbate another problem America faces: an aging population.

Immigration was thought to be one solution to Americans having fewer kids, and reversing the trend could result in a larger population of older people and lead to a smaller workforce, economists have said.

Demographic shifts are likely to be greater if immigration is significantly curtailed, Alan Berube, a senior fellow at the Brookings Institution, said.

During his campaign, the President-elect promised to deport unauthorized migrants, of which there are around 11 million in the US, according to the Center for Migration Studies. Trump also promised to ban refugees from some countries and reinstate travel bans he implemented in his first term, which could restrict immigration flows.

If immigration were to fall to "low" levels—which the Brookings Institution defines as 350,000-600,000 net migrants per year—the US population could drop by 4% by the end of the century, Berube said, citing a 2023 Brookings projection. If the US were to completely close its borders, the population could drop 32% by 2100.

Berube told BI that the effects of the immigration policy Trump ultimately pursues in his term would likely fall between those two estimates. He added that this could create issues for the rest of the population, which will need to support a larger cohort of older people.

In the group's low immigration scenario, America's 65-and-older population would make up 57% of the working-age population by the end of the century, up from 28% in 2022.

"The US workforce right now is aging more rapidly than at any point in our country's history," Berube said. "Even as our population ages, if we cut off the supply of immigrant labor, the challenges that go along with an aging population and an aging workforce are going to get much more serious."

Trump and the Republican party have said that the goal of deportations would be, in part, to drive down the cost of healthcare, housing, and education for Americans.

"The American people re-elected President Trump by a resounding margin giving him a mandate to implement the promises he made on the campaign trail. He will deliver," Karoline Leavitt, a spokesperson for Trump's camp, told BI in an email when asked about the potential impacts of Trump's immigration policy.

Economic challenges

Fewer people coming into the US would likely be a headwind to growth, given that the birth rate has been trending down for decades. The general fertility rate hit a record low in 2023, with just under 55 births for every 1,000 women between the ages of 15 and 44, according to the Centers for Disease Control and Prevention.

Berube said immigration is thought of as a band-aid to demographic problems since immigrants tend to be younger, which offsets the aging population. Immigrants also tend to work at higher rates, supplementing the job market.

The US had around 8.3 million unauthorized immigrant workers in 2022, according to data from the Pew Research Center.

Certain sectors are particularly at risk of labor shortages in the event of fewer migrant workers, according to José Torres, a senior economist at Interactive Brokers.

Sectors with a high proportion of undocumented immigrant workers, like construction and agriculture, could see the number of workers fall. Those industries are already facing steep labor shortages, with construction in particular facing a shortage of 200,000-400,000 workers each year.

While Trump's pro-market policies will offset some of the economic impact, Torres thinks GDP could fall by half a percentage point once Trump implements his immigration crackdown.

"When you have immigrant flows, that's growth positive. That lifts your GDP in the short run because you have all these folks that are coming in. They're coming for economic opportunity, they're working really hard," Torres told BI. "So that's going to be a headwind to the labor market overall," he said of deportations.

Todd Buccholz, a former White House economist during the George H.W. Bush Administration, thinks Trump's immigration policies will have a mild economic impact, partly because he doubts immigration will fall over the long term.

"I think it's important that the country recognize the aging of the population, the lower fertility rate," Buccholz said. "If you say, no one else is coming in, the gate is locked and no one else can play … we're going to be shrinking and have more senior citizens and fewer people to support them. I think that raises real issues," he added.