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Surveys have shown increasing odds of a US recession amid uncertainty over President Donald Trump’s tariffs. To make things worse, the world’s biggest economy is battling a burgeoning budget deficit that has surpassed $1 trillion in the first five months of the current fiscal year.
In the quarterly CNBC CFO Council Survey, the majority of chief financial officers said that they expect the US economy to enter a recession in the back half of 2025. Overall, 60% of CEOs in that survey said that they see a recession in the second half of 2025 while another 15% predict one next year.
CNBC Survey Shows CFOs Forsee a Recession in the Second Half of 2025
The majority of respondents said that they were “somewhat pessimistic about the overall state of the U.S. economy.” However, CFOs don’t see a major slowdown on the horizon and 50% believe the recession would be “moderate” and another 40% see it as “mild.”
“I feel the current administration is seeing how far they can push before anything breaks. I am hopefully after the first 100 days that things will moderate,” said one CFO.
Notably, 30% of respondents listed Trump’s trade policy as the primary reason for the new economic downturn base case. Trump has already imposed an additional tariff of 20% on Chinese imports and has threatened to slap reciprocal tariffs on other countries from April 2.
Trump’s tariffs rattled global markets in 2018 as he went about imposing tariffs on China and other countries. There are risks that Trump’s trade war could push up prices. While in his first tenure, Trump claimed that the tariffs are borne by exporting countries, economists disagree and say that they are borne by the US consumer.
Trump’s Tariffs Could Lead to a Recession
In one of his interviews, Trump said that he cannot “guarantee” that his tariffs won’t hurt Americans. Even the legendary Warren Buffett took a swipe at the tariffs saying, “Over time, they are a tax on goods. I mean, the tooth fairy doesn’t pay ’em!”
He added, “And then what? You always have to ask that question in economics. You always say, ‘And then what?’”
Notably, several retail companies have warned that the tariffs would lead to lower consumption. There are multiple indicators that show a softening of the US economy after the stellar growth in 2024. Most recently, the February payroll data showed that the world’s largest economy added 151,000 jobs in the month which was below estimates.
US consumer confidence fell to 92.9 which is 7.2 points lower than the previous reading and marks the fourth consecutive monthly fall. Moreover, the measure for future expectations fell to 65.2 which is the the lowest reading in 12 years and below the 80 level that economists consider a signal for a recession.
Recession Odds Rise
Meanwhile, several other surveys have also shown the higher odds of a US recession. For instance, a Deutsche Bank survey shows a nearly 50-50 chance of a recession.
UCLA Anderson Forecast has also recently issued its first-ever recession watch amid concerns over Trump’s policies. “This Watch also serves as a caution to the current administration: be mindful of what you wish for, as seeing all your policies through could make you the architect of a severe recession. And it may not be just a typical recession but one marked by stagflation,” said Clement Bohr, an economist at the firm.
US Budget Deficit Is Running At Elevated Levels
The rising US national debt has worried economists who see the country on an unsustainable fiscal path. The US budget deficit rose to $1.15 billion in the first five months of the current fiscal year which was 38% higher YoY.
The US budget deficit has spiked ever since the country opened up its coffers to support the economy amid the COVID-19 pandemic. U.S. budget deficit hit a record high of $3.13 trillion in the fiscal year 2020 but subsequently came down to $2.77 trillion in the next fiscal year. It fell to $1.38 trillion in the fiscal year 2022, but in the fiscal year 2024, the budget deficit increased to $1.8 trillion.
Thanks to the elevated deficit, the US national debt has surpassed $36 billion and is almost 123% of the GDP. For context, the ratio was under 60% at the beginning of this century and has risen significantly since then.
Both Fitch and Standard & Poor’s removed their AAA rating on US sovereign debt. Moody’s still has the top rating on US government debt but it has lowered its guidance to negative.
In a recent note, Moody’s noted, “Even in a very positive and low probability economic and financial scenario, debt affordability remains materially weaker than for other AAA-rated and highly rated sovereigns.”
Higher Interest Rates Add to Fiscal Burden
Higher US interest rates have also added to the growing budget deficit. Interest expense totaled $478 billion in the first five months of the fiscal 2025. Financing costs topped $1 trillion last year amid higher interest rates and are expected to rise to another record high of $1.2 trillion for the current fiscal year. Interest costs are now the fourth largest expense for the US federal government after Social Security, defense and health care.
Moody’s expects interest expense to account for 30% of government revenues in 2030 as compared to a mere 9% in 2021.
Jerome Powell Has Warned About Soaring Deficits
Last year, Fed chair Jerome Powell sounded alarm over the ever-rising US debt pile. “It’s probably time, or past time, to get back to an adult conversation among elected officials about getting the federal government back on a sustainable fiscal path,” said the Fed chair.
Powell added, “In the long run, the U.S. is on an unsustainable fiscal path. The U.S. federal government is on an unsustainable fiscal path. And that just means that the debt is growing faster than the economy. So, it is unsustainable. I don’t think that’s at all controversial. And I think we know that we have to get back on a sustainable fiscal path.”
During the “60 Minutes” interview, Powell sounded apprehensive that future generations would suffer the consequences of the current spending spree.
Ray Dalio has also talked about the burning issue multiple times. Speaking with CNBC’s Sara Eisen at CONVERGE LIVE in Singapore, he said the US would need “to sell a quantity of debt that the world is not going to want to buy.” The Bridgewater founder added, “That’s a big deal. You are going to see shocking developments in terms of how that’s going to be dealt with.”
Meanwhile, the Fed does not see the US economy headed toward a recession. Speaking at the US Monetary Policy Forum earlier this month, Fed chair Jerome Powell began his speech by saying, “Despite elevated levels of uncertainty, the U.S. economy continues to be in a good place.”
Powell acknowledged that “recent surveys of households and businesses point to heightened uncertainty about the economic outlook.”
He however added, “It remains to be seen how these developments might affect future spending and investment. Sentiment readings have not been a good predictor of consumption growth in recent years.”
