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- The economy could enter a recession later this year, according to TD Cowen’s Jeffrey Solomon.
- The Wall Street vet says tariffs could result in a string of consequences that will slow the economy.
- The slowdown is likely already here, he told CNBC this week.
The US economy could tip into a recession as soon as the second half of this year thanks to a string of consequences resulting from tariffs, one Wall Street executive said this week.
Jeffrey Solomon, the president of TD Cowen, is among a small but growing group of forecasters on Wall Street who say a downturn is on their radar for 2025, despite most economists still sticking with calls that the US will head for a soft landing.
That’s partly due to tail risks looming over the economy, Solomon said, pointing to Trump’s latest round of tariffs on Canada, China, and Mexico.
The three countries, which are the US’s top trading partners, have vowed to hit back at the US with retaliatory tariffs. Canada announced a 25% tariff on US exports to the nation over the weekend, while China levied 10% and 15% tariffs on various US goods.
A full blown trade war would spark a chain reaction, impacting supply chains in the US and potentially striking enough fear in business leaders to hold off on dealmaking and new investments, Solomon told CNBC this week.
“I wouldn’t expect, but I wouldn’t be surprised if we see a recession coming in the back half of the year just based on people slowing things down and seeing how it all plays out,” Solomon said, adding that he believed markets have not fully priced in the impact of tariffs.
“People have to take a breather and say, ‘Wow. Is this real? Is it not real? What’s going to happen with it? I can’t really afford to make any capital investments until I understand what hte landscape looks like.’ And that’s kind of what’s happening.”
Signs of an economic slowdown are already beginning to appear in the latest economic data. GDP is expected to contract 2.8% in the first quarter of 2025, according to the Atlanta Fed’s latest GDPNow estimate. If realized, that would represent the first contraction in the economy since 2022, when the US slipped into a brief technical recession.
Job gains have also been slowing, with the economy adding 143,000 payrolls in January, fewer than the expected 169,000. Meanwhile, the private sector added just 77,000 jobs last month, way fewer than the 148,000 jobs economists were anticipating, per the latest ADP employment report.
The trade war could worsen the growth picture. US GDP could decline as much as 0.32 percentage points, and employment could decline by as much as 0.25 percentage points if Canada and Mexico follow through with retaliatory tariffs, according to one Brookings projection.
Torsten Sløk, the chief economist of Apollo, said recession risks were rising in a note last week. He also predicted a possible bout of stagflation, an economic scenario that involves high inflation and low economic growth.
“It’s a stagflationary shock when you see inflation going up and growth slowing down. And that just happens to be the backdrop for the conversation that we’re having in markets at the moment,” he said speaking to Bloomberg.
Dhaval Joshi, a chief strategist at BCA Research, told Business Insider that he believed the US could slip into a “mini-stagflation” as soon as the second quarter of this year as economic growth slows.
“We’ve got inflation around 3% or above, so that’s already there. But the ‘stag’ bit —in other words, the growth slowdown — that is still to come,” he added. “I think that could happen quite quickly,” he added.