Over the past week, the new Trump administration has lost some of its braggadocio when it comes to the economy.
Gone are the promises of lowering prices on the first day Donald Trump returned to the White House. Gone are the pronouncements that economic growth will surge.
Instead, Treasury Secretary Scott Bessent on Friday said in an appearance on CNBC: “Could we be seeing that this economy that we inherited starting to roll a bit? Sure. And look, there’s going to be a natural adjustment as we move away from public spending to private spending.”
Asked by Fox News host Maria Bartiromo on Sunday whether his economic policies – the imposition of high tariffs on imports from Canada, Mexico and China and a chainsaw-wielding Elon Musk firing government employees at random – might lead to a recession, Trump deflected, saying, “I hate to predict things like that.”
“There is a period of transition because what we’re doing is very big,” Trump added. “We’re bringing wealth back to America. That’s a big thing. It takes a little time. It takes a little time.”
Later, Trump was asked by the White House press pool about a recession and he responded: “Why would I answer that?”
Last week, during his speech to a joint session of Congress, the president acknowledged that his tariffs could have a short-term negative effect on the economy, terming them a “disturbance.”
But already markets and the corporate world are getting restless with the uncertainty and the cuts announced by Musk’s Department of Government Efficiency. The S&P 500 suffered its worst week since September last week, falling 3.1%, as the “Trump bump” that followed his election has turned into the “Trump slump.” All of the gains that markets enjoyed after he won in November have now evaporated.
Dow Jones Industrial Average futures fell 500 points Monday morning in premarket trading.
“It cannot be known if DOGE will succeed at streamlining government, reducing waste and promoting efficiency in the intermediate to long term,” Doug Peta, chief U.S. investment strategist at BCA Research, wrote Monday morning in a client note. “We have more conviction that its layoffs will erode economic growth in the near term via its direct drag on nonfarm payrolls growth and the negatively self-reinforcing impacts that will follow in its wake.”
“Slower payrolls growth begets slower consumption growth, feeding on itself until the outlook weakens enough that businesses slam the brakes on discretionary investment and a recession ensues,” he added.
There is some indication that is happening. Consumer spending unexpectedly contracted in January, while on Monday the e-commerce fraud protection firm Signifyd said that online sales rose by a modest 2% in February, though that was largely from a spike in grocery spending while other categories decreased.
As for the tariffs, Trump’s rollout has amounted to a roller coaster. First, he moved to impose them, then he delayed them last week, as it pertains to Canada and Mexico, letting the ones on China take effect and be met with retaliatory action. The uncertainty over when and what the tariffs will amount to in the end is causing its own volatility and exacting an economic toll as well.
“The situation remains extremely fluid, with tariffs being announced and delayed all within the same week,” said Alan Wynne, global investment strategist at J.P. Morgan Private Bank. “We continue to evaluate our base case, but risks look large. Our base case accounts for durably higher tariff rates on Chinese imports and other products that are deemed to be important to national security, but the risk is clearly for higher tariff rates on a wider range of countries and goods.”
As for inflation, it has risen since November, with the consumer price index increasing to a 3% annual rate in January, up from 2.7% then.
The economy is headed for an inflation check this week, with both CPI and the producer price index, or PPI, for February due out on Wednesday and Thursday, respectively. Economists expect both will drop slightly from January’s rate of 3% for the CPI and 3.5% for the PPI.
“Inflation data will dominate the economic calendar this week. The total and core consumer price indexes likely rose at a more moderate pace in February after sharp increases in the prior month, resulting in annual increases holding roughly steady,” Comerica Bank Chief Economist Bill Adams said on Sunday. “Pushed higher by tariffs and tariff threats, producer prices probably rose faster than consumer prices for a second month running, keeping annual PPI elevated.”
Still, those readings will be above the Federal Reserve’s 2% annual target, and the question is whether they will increase again as Trump’s tariffs bring higher prices for consumers purchasing imported goods. The Fed will meet March 18 and 19 with forecasts the central bank will leave rates unchanged after holding them steady at its January meeting.
Fed Chairman Jerome Powell suggested in a speech Friday at the University of Chicago that he and his colleagues are watching Trump’s policies to see what effect they may have on the economy. But he added the Fed can remain on hold while those become more clear.
“The new administration is in the process of implementing significant policy changes. … Uncertainty around the changes and their likely effects remains high,” Powell said. “We are focused on separating the signal from the noise as the outlook evolves. We do not need to be in a hurry, and are well-positioned to wait for greater clarity.”
Other economic data to watch will include the New York Federal Reserve’s consumer survey’s one-year ahead inflation expectations and the University of Michigan’s consumer sentiment survey estimate for March. Both will show whether consumers are ratcheting up their assessment of inflation, as well as provide a snapshot of the current mood of Americans on the economy.
Then there is the continuing threat of a government shutdown as the Friday deadline for coming up with a deal approaches. Republicans in the House have offered a plan to keep the government running until Sept. 30 but may well struggle to get enough GOP votes to pass it. The plan calls for spending cuts that are not likely to sit well with Democrats.
