U.S. Economy Expected to Slow in 2025 but Avoid Recession, Says Wells Fargo

The U.S. economy is projected to experience a slowdown in early 2025, with a more pronounced deceleration in the second half of the year. However, despite rising uncertainties surrounding the Trump administration’s trade policies, analysts at Wells Fargo believe that the world's largest economy remains fundamentally strong enough to avoid a recession.

Trade Tensions and Weather-Related Disruptions Impact Growth

Economic experts have flagged global trade tensions and severe winter weather in January as key factors dampening U.S. economic activity. President Donald Trump’s aggressive tariff policies, affecting both allies and adversaries, have created unease among economists. They warn that such measures could reignite inflationary pressures and potentially weaken overall economic growth.

Declining Consumer Confidence and Business Activity

Recent economic data suggests a drop in consumer confidence and a slowdown in business activity, although inflation continues to decline. Additionally, the Trump administration's large-scale federal workforce reductions have raised concerns about their impact on the broader U.S. job market.

Despite this, Trump defends his policies, arguing that they are necessary to address trade imbalances, eliminate wasteful spending, and stimulate domestic job growth. However, market sentiment has been shaken, with the S&P 500 index falling into correction territory—a decline of more than 10% from its recent peak—on Thursday.

Wells Fargo Analysts: No Recession Expected in 2025

In a recent client note, Wells Fargo analysts acknowledged that Trump’s trade policies and government layoffs have contributed to slowing economic momentum and increased the likelihood of an economic downturn in 2025.

However, they emphasized that a recession is not their base case scenario. They highlighted the strong financial health of U.S. households and the fact that most businesses do not anticipate major layoffs, which should help cushion the economy.

Federal Reserve to Cut Interest Rates in 2025

Looking ahead, analysts expect the Federal Reserve to implement three interest rate cuts by the end of 2025 to support the economy if the labour market weakens further. The Fed had paused its rate-cutting cycle in January, opting for a wait-and-see approach before making additional policy adjustments.

Key Takeaways

• U.S. economic growth is slowing but remains resilient enough to avoid a recession in 2025.
• Trade uncertainties and workforce reductions are key risks, but inflation is cooling.
• Stock markets have reacted negatively, with the S&P 500 entering correction territory.
• The Federal Reserve is expected to cut rates three times by the end of the year.

By maintaining a cautious but optimistic outlook, experts believe the U.S. economy can withstand near-term headwinds and continue its trajectory of moderate growth in 2025.

(Sources: investing.com, reuters.com)