The Wall Street Journal’s chief economic reporter, Nick Timiraos, known as the “Fed’s megaphone,” wrote in an article published on Monday that U.S. economic policymakers have been focused over the past year on achieving what is termed a “Soft Landing,” which aims to reduce inflation without triggering an economic recession. Now, a new leadership team is considering a shift in direction, acknowledging that this may lead the U.S. economy toward a Hard Landing.
Timiraos pointed out:
Timiraos mentioned that recent comments made by Trump during an interview, along with subsequent clarifications, caused market turbulence on Monday. High-ranking government officials, including Secretary of Commerce Howard Lutnick, have warned in recent days that tariffs could lead to one-time price increases, while Treasury Secretary Scott Bessent hinted that the U.S. economy may 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 advisers is a warning sign. The government initially seemed to downplay the risks of rising inflation leading to increased public debt yields or blamed the panic over slowing economic growth on the Biden administration. However, recent statements indicate that the government appears unconcerned about economic slowdown and may even consider it necessary.
Michael Strain, the head of economic policy research at the American Enterprise Institute, stated that this has left the market quite uneasy, “because once we push the economy to the point of recession, no one can guarantee that it will be over quickly.”
J.P. Morgan analysts noted on Monday that “extreme U.S. policies” could increase the risk of an economic recession, raising the likelihood of a recession in 2025 from 30% at the beginning of the year to 40%. Goldman Sachs also increased the probability of a U.S. recession within the next 12 months from 15% to 20%, stating that if the Trump administration persists with current policies, even if economic data worsens further, the risk of recession could rise even more.
Some analysts warned that Trump’s comments might reflect a strategic effort to improve the U.S. negotiating position with trade partners while pressuring bond investors and the Fed to lean towards interest rate cuts. 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 events of the past two weeks suggest that Trump is unlikely to change his policy direction due to market declines, which helps Wall Street readjust its expectations. Andy Laperriere, head of U.S. policy research at Piper Sandler, stated, “Everything he is doing tells us that he is not joking. His beliefs regarding tariffs are deeply entrenched.”