Top Banks Now See High Odds of a US Recession Looming in 2025

The U.S. economy stands at a crossroads in spring 2025, with fresh warnings of a potential recession stirring unease among policymakers, businesses, and households. A leading economist at Citi, one of the nation’s largest banks, recently pegged the odds of a downturn at 40% to 45% within the next year, a figure that has jolted analysts and sparked debate about the nation’s economic trajectory. This forecast, grounded in mounting pressures like trade disruptions and persistent inflation, underscores a broader sense of uncertainty gripping global markets.

The Citi projection aligns with a wave of concern rippling through economic circles. Consumer confidence has cratered to levels not seen in over a decade, while businesses hesitate to invest amid unpredictable trade policies. Inflation, though easing slightly, continues to squeeze wallets, and the labor market shows early signs of strain. These factors, combined with global growth forecasts trending downward, paint a picture of an economy teetering on the edge of a slowdown, if not a full-blown recession.

Several forces are driving the heightened recession risk. The recent imposition of steep tariffs, raising the average U.S. tariff rate to around 30%, has disrupted global supply chains and dampened business sentiment. The International Monetary Fund now estimates a 40% chance of a U.S. recession in 2025, up from 25% late last year, citing trade tensions as a primary culprit. J.P. Morgan Research goes further, placing the odds at 60%, while Deutsche Bank’s survey hovers near 43%. These projections reflect fears that tariffs will choke investment and inflate costs, slowing economic activity.

Inflation remains a stubborn challenge. Although the U.S. annual inflation rate dipped to 2.4% in March 2025, forecasts suggest it could climb to 4% by year-end as tariffs ripple through supply chains. Globally, inflation is projected at 4.3% for 2025, with food prices and service costs keeping pressure on consumers. For American households, 77% report that their incomes can’t keep up with rising costs, fueling a shift toward cheaper store brands and deal-hunting. This cautious spending, while pragmatic, risks further slowing economic growth.

Consumer confidence, a key driver of economic health, has taken a beating. The Conference Board’s Expectations Index plummeted to 65.2 in March, its lowest in 12 years, signaling deep pessimism about jobs and income prospects. The University of Michigan’s Consumer Sentiment Index fell 11% in April alone, down over 30% since December 2024. Historically, such sharp drops in confidence have preceded economic downturns, as wary consumers cut back on big purchases, from cars to appliances, which in turn drags down business revenues.

The U.S. is not alone in facing economic headwinds. The IMF has slashed its global growth forecast to 2.8% for 2025, a sharp drop from earlier projections and well below the pre-pandemic average of 3.2%. Trade growth is expected to limp along at just 1.7%, as countries struggle to reroute supply chains amid widespread tariffs. While advanced economies like the U.S. and Europe face slower growth, developing regions like Africa and Latin America grapple with weak investment and high debt, limiting their ability to cushion economic shocks.

Labor markets, though resilient, are starting to show cracks. The global unemployment rate is projected to hold steady at 5% in 2025, a historic low, but youth unemployment remains high at 12.6%, and job creation in poorer nations lags. In the U.S., the unemployment rate ticked up to 4.2% in March, with businesses scaling back hiring due to tariff uncertainty. Worker anxiety is palpable, with 81% of U.S. employees worried about job security, a sentiment that could further dampen consumer spending.

Central banks are walking a tightrope, trying to tame inflation without tipping economies into recession. The U.S. Federal Reserve has held its benchmark rate at 4.25% to 4.5% since January, after cutting rates by a full percentage point late last year. Fed officials project two more cuts in 2025, but they’ve made clear that any moves will depend on incoming data, particularly on inflation and trade impacts. Across the Atlantic, the European Central Bank trimmed rates by a quarter point in April, citing weaker growth and progress on disinflation.

High borrowing costs are already pinching consumers and businesses. U.S. mortgage rates for 30-year loans averaged 6.7% in early 2025, making homeownership less attainable and cooling the housing market. For businesses, elevated interest rates mean pricier loans, which discourage expansion and hiring. Yet, central banks face pressure to keep rates firm to prevent tariffs from reigniting inflation, creating a delicate dance between supporting growth and maintaining price stability.

Despite the grim forecasts, some analysts see reasons for cautious optimism. Goldman Sachs recently lowered its recession odds after a pause in some tariff hikes, and technological advancements, like green energy innovations, could boost productivity over time. In the U.S., the labor market’s resilience, with 228,000 jobs added in March, suggests businesses are holding steady for now. Globally, regions like China and Europe are projected to see modest growth, offering some ballast to the world economy.

Still, the path forward hinges on policy decisions and global cooperation. Economists warn that escalating trade conflicts could deepen the slowdown, while coordinated efforts to stabilize supply chains and inflation could ease pressures. For everyday Americans, the stakes are tangible: job security, grocery bills, and the ability to plan for the future all hang in the balance as the economy navigates this uncertain terrain.