Economic Slowdown Underway, But Recession Fears May Be Overblown

The US economy has shifted from consistently outperforming expectations to showing signs of moderation in early 2025.

The Federal Reserve recently reduced its GDP growth projection for the year to 1.7%, down from its December forecast of 2.1%. Major financial institutions including JPMorgan, Morgan Stanley, and Goldman Sachs have similarly lowered their projections, partly due to expected impacts from President Trump’s tariff policies.

Despite this cooling, Fed Chair Jerome Powell maintains the economy “seems to be healthy” with consumer spending moderating but remaining “solid.” While recession probabilities have increased somewhat (Goldman Sachs now puts it at 20%, up from 15%), this doesn’t indicate an impending crisis. Some concerning signals exist—Kalshi’s betting markets show 40% recession odds, the Atlanta Fed’s GDPNow tool forecasts a Q1 GDP decline, and consumer sentiment has fallen—but experts note these reflect uncertainty rather than economic reality.

Recent data, including February’s retail sales rebound and March’s stronger-than-expected PMI reading of 53.5, support the view that while growth is slowing from 2024’s unsustainable pace, it represents moderation rather than collapse.