Will There Be a Recession in 2025?

The question on everyone's mind, from Wall Street to Main Street, is this: Will there be a recession in 2025? As things stand in late May 2025, the honest answer, based on the data and expert opinions I've been following, leans towards a likely but not guaranteed economic slowdown. We've seen some tough times before, and the current mix of rising costs, trade worries, and shaky confidence reminds me of those periods. While some experts are optimistic about our resilience, several flashing warning lights suggest we need to be cautious about the coming year.

Will There Be a Recession in 2025?

What Exactly Is a Recession Anyway?

Before diving deeper, let's clarify what we're talking about. A recession isn't just a bad day for the stock market. It's a more serious and widespread decline in economic activity that usually lasts for more than a few months. The big signs economists look for are:

• Two Quarters of Negative Growth: This means the total value of goods and services our country produces (GDP) shrinks for six months straight.
• Rising Joblessness: More people are losing their jobs and filing for unemployment.
• Less Spending: People are buying fewer things, and businesses are selling less.
• Trouble in the Financial World: Stock markets might be volatile, it could be harder for businesses and people to borrow money, and we might see problems with investments.

These things don't happen out of nowhere. Recessions can be caused by all sorts of issues, like when governments make the wrong financial moves, when there's a big crisis in the banking system, or even when something unexpected rocks the global economy. Right now, it feels like we've got a few of these potential triggers bubbling beneath the surface.

The Warning Signs I'm Watching Closely

As I look at the current economic picture (around late May 2025), several indicators make me feel uneasy about what 2025 might hold:

Policy Roadblocks and Trade Tangles

One of the biggest clouds hanging over us is the uncertainty around government policies, especially when it comes to trade. The idea of new tariffs, like the ones being talked about – a possible 10% across the board and even higher on goods from places like China, India, and the European Union – honestly scares me. Experts at UCLA Anderson say this could be like a huge tax increase, taking a big chunk out of our economy. It could make things more expensive for companies to make products, mess up the flow of goods we rely on, and ultimately mean people have less money to spend. Sectors like stores and farming could really take a hit, according to Forbes.

Even though some of the earlier worries about trade with China have cooled down a bit (J.P. Morgan Research thought the chance of a recession because of that dropped from 60% to 40%), these tariffs still feel like a heavy weight dragging on our potential for growth. J.P. Morgan thinks our economy might only grow at a snail's pace of 0.25% in the second half of 2025 because of all this.

The Inflation Puzzle and Interest Rate Tightrope

Remember when prices for everything shot up? Well, while inflation has come down from its peak in 2023 (when the Consumer Price Index hit 9.1%), it's still stubbornly high, sitting above 4.2% in the first three months of 2025. The Federal Reserve wants to see that number closer to 2%, and this persistent inflation, especially if these new tariffs make things even pricier, could lead to a really nasty situation called stagflation – where prices keep going up but the economy isn't growing. That's a tough spot to be in.

To fight inflation, the Federal Reserve has been raising interest rates. Right now, the main interest rate is at 4.34%. What worries me is that something called the yield curve has been inverted since June 2022. Basically, it means that the returns on short-term government bonds are higher than on long-term ones. This is a big deal because historically, when this happens for a long time (and this has been the longest inversion since 1955!), it's been a really reliable sign – like 94% accurate, according to Forbes – that a recession is on the way within the next 18 months or so. The Fed has paused raising rates for now, and they're in a tough position – they need to cool down inflation without slamming the brakes on the whole economy. It's a delicate balancing act, as U.S. News points out.

Slowing Down: GDP Growth Trends

When we look at how the economy has actually been performing, the numbers aren't exactly roaring. In the first quarter of 2025, the economy is projected to have grown by only about 1.1% per year. That's below what experts consider our long-term potential of around 2.2%. What's also concerning is that the growth we did see wasn't being strongly driven by people spending money – that only added a little bit (0.4%), with government spending contributing slightly more (0.5%), according to Forbes. And as I mentioned before, J.P. Morgan is predicting a really weak 0.25% growth rate for the second half of 2025. That kind of slowdown makes the economy much more vulnerable to falling into a full-blown recession.

Job Market Jitters

While the unemployment rate of 4.2% still seems relatively low, I'm starting to see some cracks in the labor market. The number of people filing new jobless claims has been creeping up, averaging around 285,000 per week recently, compared to about 220,000 in mid-2024. Also, something that often happens before a broader slowdown is that companies start cutting back on temporary workers, and we've seen temporary employment drop by over 5% annually for the past nine months, according to Forbes.

Adding to this worry is a plan by the Department of Government Efficiency (DOGE) to potentially cut 10-15% of the government workforce. UCLA Anderson suggests this could mean up to a million people losing their jobs. That kind of public sector job loss could definitely send shockwaves through the economy.

Global Economic Headwinds

We don't live in a bubble, and what's happening around the world can definitely affect us. The International Monetary Fund (IMF) has lowered its forecasts for global growth multiple times in the last year. In China, which is a huge market for us and a major source of our imports (about 15%), their manufacturing sector has been shrinking for four straight quarters, according to Forbes. If the global economy slows down, it's likely to pull our economy down with it.

Then there are potential financial crises brewing elsewhere. For example, the fact that office buildings have high vacancy rates (over 19%) and their values have dropped significantly (25-40%) is concerning. On top of that, a massive amount – $1.2 trillion – of commercial mortgages needs to be refinanced in the next couple of years, as Forbes notes. If these property owners can't refinance or if their properties lose more value, it could create big problems in the financial system.

Household Finances Under Strain

How are regular people doing? Well, the Consumer Confidence Index is below its long-term average, and retail sales (excluding cars and gas) have actually gone down in three of the last five months, according to Forbes. This suggests people are feeling less secure and are cutting back on spending.

What's really alarming is that the amount of money people are spending to pay off their debts, compared to their income, is at its highest level since 2007, right before the last big financial crisis, according to economist Larry Summers. When people are already stretched thin with debt payments, they have less room to handle unexpected expenses or a job loss, making them more vulnerable during an economic downturn.

Risks Lurking in the Financial System

Looking at the financial markets, some things remind me of past bubbles. The high valuations of some stocks, especially in areas like AI and cryptocurrencies, feel a bit like the dot-com boom. Also, the difference in returns between corporate bonds that are considered safe and those that are riskier (the corporate bond spread) is very low, which might mean investors aren't properly accounting for potential risks. And house prices are still near record highs in many areas, according to UCLA Anderson.

The Federal Reserve has also pointed out that private credit markets could pose risks to the financial system. These are basically loans made by non-bank lenders, and they aren't always as closely regulated as traditional banks. If the economy weakens, some of these loans could go bad, potentially causing wider problems.

What the Experts Are Saying

It's always good to look at what the people who study this stuff for a living are predicting. And honestly, the range of opinions on whether we'll see a recession in 2025 is pretty wide:

The Worriers' Camp

Some really well-respected economists are sounding the alarm:

• Nouriel Roubini thinks there's an 80% chance of a recession hitting by the end of 2025, pointing to all the different risks we're facing (Forbes).
• Larry Summers is also worried about high household debt and the potential for government policy missteps (Forbes).
• Torsten Slok from Apollo has been particularly pessimistic, putting the odds of a recession in 2025 as high as 90% (via an X post).
• Even surveys of business leaders are showing increased concern. A CNBC survey of Fed watchers in March 2025 found that the probability of a recession had gone up to 36% from 23%, with tariffs being seen as the biggest threat.
• Interestingly, people are even betting on a recession happening. Platforms like Polymarket and Kalshi in April 2025 showed the odds of a recession at a pretty high 63-70% (via X posts).
• And a CNBC survey of corporate CFOs in March 2025 found that most of them expect a recession in the second half of 2025 and described their outlook as “pessimistic.”

The Optimists' Corner

On the other hand, some economists are more hopeful:

• David Mericle at Goldman Sachs is actually predicting a solid 2.5% GDP growth rate, saying that recession fears have lessened and the job market is still strong (Money.com).
• Joe Davis from Vanguard also expects decent growth (2.1%) and doesn't see a recession as the most likely outcome (Money.com).
• Paul F. Gruenwald at S&P Global forecasts 2% GDP growth, even with the policy risks out there (Money.com).
• Mark Zandi from Moody's Analytics believes the economy is on a firm footing and that some of the unusual patterns in the job market don't necessarily mean a recession is coming (Money.com).
• A survey of economists by SIFMA (Securities Industry and Financial Markets Association) predicted 1.9% GDP growth, with almost half of them seeing the chance of a recession as being very low (15% or less).

Somewhere in the Middle

Some experts have a more balanced view:

• J.P. Morgan Private Bank estimates the probability of a recession at around 20%, which is higher than usual, but they don't think the current economic cycle will end in 2025.
• A Bankrate survey in April 2025 found that the odds of a recession by March 2026 were 36%, up from 26% at the end of 2024.

What's Been Happening Lately?

Looking at the most recent data from around April 2025, the picture remains unclear but with a tilt towards increased worry:

• While the number of people initially filing for unemployment benefits is still low (which is a good sign of job market strength), the fact that these numbers have been creeping up and that temporary employment is falling is still a concern (via an X post).
• As I mentioned, the betting markets (Polymarket and Kalshi) saw a significant jump in recession odds from around 39% in March to 63-70% by April (via X posts).
• And the pessimism among corporate financial officers seems to be growing, with a large majority (95%) saying that government policies are impacting their business decisions (CNBC).

What We Need to Keep an Eye On

Whether or not we actually slide into a recession in 2025 will depend on how several key factors play out:

• The Tariffs: How big will these tariffs be, and how quickly will they be put in place? This will have a big impact on how much things cost and how much people can afford to buy.
• Inflation: Will inflation finally start to come down towards the Fed's target, or will it stay high or even go up again, possibly forcing the Fed to raise interest rates further?
• The Job Market: How will the planned government layoffs affect the overall job market? Will we see more widespread job losses in other sectors? What impact could potential mass deportations have on the workforce and the economy?
• The Global Economy: Will the slowdown in major economies like China worsen? Could this further dampen demand for U.S. goods and services?
• Government Spending and Taxes: What will be the long-term effects of the current administration's tax cuts and spending plans on our national debt and overall economic confidence?

The Bottom Line: Uncertainty Ahead

So, will there be a recession in 2025? Based on the information I've looked at, the probability feels significant, though it's definitely not a done deal. The range of expert opinions, from a relatively low 36% chance to a very high 90%, highlights the uncertainty. However, the recent trends in market sentiment, with betting platforms showing increased recession odds and corporate leaders becoming more pessimistic, suggest a growing concern.

The potential impact of new tariffs and planned government layoffs adds to these worries, especially when combined with slowing economic growth, persistent inflation, and challenges in the global economy. While some experts point to the economy's underlying strength, particularly in the labor market, the risks seem substantial. For me, it feels like we're navigating some choppy waters, and it's crucial for both policymakers and individuals to stay alert and prepared for potential economic headwinds in 2025.