Experts are sounding the alarm about the U.S. economy, warning that the chaos President Donald Trump and co-President Elon Musk have unleashed over the past month could send the country into a devastating recession.
According to economists, Trump and Musk’s aggressive slashing of federal contracts and jobs through their Department of Government Efficiency initiative is already causing private industries to scale back—setting off what experts say will have severe ripple effects on local economies.
“It seems almost unavoidable that we are headed for a deep, deep recession,” Jesse Rothstein, a former chief economist at the Department of Labor and now a professor at the University of California, Berkeley, told The Telegraph.
Job Cuts and Federal Contract Slashes
Trump and Musk have eliminated thousands of federal jobs and abruptly slashed government contracts for critical sectors, including medical research, threatening state economies that rely on federal funding.
Universities and medical research facilities, in particular, are feeling the strain.
“Make no mistake, these times pose an existential threat to healthcare institutions, to academic medicine, and to the academy as we know it,” Jon Epstein, dean of the University of Pennsylvania’s Perelman School of Medicine, told the university earlier this month.
Trump’s Tariff Threats Cause Industry Uncertainty
At the same time, Trump’s threats of significant tariffs are paralyzing private industries, which have become increasingly wary of his leadership.
“The chaos that is reigning right now is causing everyone to sit on their hands,” Nasdaq Private Market CEO Tom Callahan told Semafor.
Rothstein predicted that the economic devastation could start manifesting in April or May, with job losses reaching levels comparable to the early months of the COVID-19 pandemic and the Great Recession.
“Losses of 400,000 a month are not implausible because people are getting nervous out there,” Rothstein told The Telegraph.
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Ripple Effects Across the Economy
“There are all kinds of spillovers. Contracts for external contractors are being cut. Nobody knows how much imports are going to cost next month, or if we are even going to have accurate weather forecasts anymore,” he added.
“How could you hire in these conditions? This is going to be very, very bad.”
Economic warning signs are already appearing.
Consumer spending declined by 0.2% in January, according to the Commerce Department’s Bureau of Economic Analysis, with consumers pulling back on vehicle parts, recreational goods, clothing, food and beverages, and household furnishings.
Washington Post economic columnist Heather Long called the decline in consumer spending a “warning sign for the economy.”
Meanwhile, jobless claims rose to a three-month high last week, with 242,000 people applying for unemployment benefits for the week ending Feb. 22, as Trump and Musk continue slashing jobs across the federal government, according to the Department of Labor.
Inflation and Consumer Confidence Drop
Inflation also remained stubbornly high in January, with rising egg prices fueling concerns. At the same time, consumer confidence in February saw its sharpest monthly drop since August 2021, CNN reported.
“The fact that consumers don’t feel like it’s smooth sailing—you’ve got one very obvious suspect. That’s the White House, which is sowing uncertainty just about everywhere, whether it comes to trade policy or foreign policy,” Justin Wolfers, an economics professor at the University of Michigan, told CNN.
“I genuinely understand why consumers are nervous and I hope this doesn’t turn out to be a self-inflicted own goal.”
Wall Street Faces Uncertainty
A historic marker that’s outside of President Trump’s control spells trouble for Wall Street.
In October, Wall Street’s bull market rally celebrated its two-year anniversary, and it’s shown little sign of slowing down. Since 2022 came to a close, the ageless Dow Jones Industrial Average, widely followed S&P 500, and growth-focused Nasdaq Composite have respectively increased by 31%, 55%, and 82%.
This rally has been fueled by an assortment of factors, including:
- The rise of artificial intelligence (AI).
- The resiliency of the U.S. economy.
- Investor euphoria regarding stock splits in influential businesses.
- Better-than-expected corporate earnings.
- A substantial uptick in corporate buybacks.
But over the last four months, arguably nothing has been more important to the Dow Jones, S&P 500, and Nasdaq Composite than Donald Trump’s November victory and subsequent return to the White House.
During Trump’s first term in office, the Dow, S&P 500, and Nasdaq catapulted higher by 57%, 70%, and 142%, respectively. To say that investors are looking for an encore would be an understatement.
Optimism vs. Reality
The optimism that accompanies Trump’s second term has to do with the belief that he’ll seek to lower the peak marginal corporate income tax rate and foster deregulation.
The former is likely to inspire record share repurchases from S&P 500 companies, while the latter should encourage dealmaking and bring new innovations to market at a faster pace.
While the table would appear to be set for additional upside for Wall Street, one historically flawless indicator suggests otherwise.
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