A Wall Street executive has cautioned that the U.S. economy could tip into a recession as early as the second half of 2025 due to the impact of tariffs.
Jeffrey Solomon, the president of TD Cowen, is among a growing group of Wall Street forecasters who are signaling concerns about a downturn, despite broader expectations for a soft landing.
Solomon pointed to looming tail risks, specifically citing former President Donald Trump’s latest round of tariffs on imports from Canada, China, and Mexico. The three countries, which are the U.S.’s top trading partners, have already announced retaliatory measures, with Canada imposing a 25% tariff and China levying 10% and 15% tariffs on various U.S. goods.
A full-blown trade war could set off a chain reaction, affecting supply chains in the U.S. and potentially creating enough uncertainty for business leaders to delay dealmaking and new investments, Solomon told CNBC.
“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 waiting to see how it all plays out,” Solomon said, adding that markets have yet to fully price in the economic effects 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 the landscape looks like,’” he added. “And that’s kind of what’s happening.”
Signs of an economic slowdown are already emerging. The Atlanta Fed’s GDPNow tracker shows that GDP is expected to contract by 2.8% in the first quarter, marking the first contraction since 2022, when the U.S. briefly entered a technical recession.
Job growth has also slowed, with the economy adding 143,000 payrolls in January, falling short of the expected 169,000. ADP data showed that the private sector added just 77,000 jobs last month, significantly below the 148,000 jobs economists had forecast.
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A prolonged trade war could further weigh on economic growth. The Brookings Institution projected in early February that U.S. GDP could decline by as much as 0.32 percentage points and employment could shrink by 0.25% if Canada and Mexico proceed with retaliatory tariffs.
Torsten Sløk, Apollo’s chief economist, also warned last week that recession risks are increasing and suggested that the economy could be heading toward stagflation—a period of high inflation coupled with slow growth.
“It’s a stagflationary shock when you see inflation going up and growth slowing down,” Sløk told Bloomberg. “And that just happens to be the backdrop for the conversation that we’re having in markets at the moment.”
Dhaval Joshi, a chief strategist at BCA Research, echoed this sentiment, telling Business Insider that the U.S. could enter a “mini-stagflation” phase as early as the second quarter of 2025.
“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,” Joshi said. “I think that could happen quite quickly.”
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