Sunday happy. I return this week to the American economy.

The possibility of recession in America increased this week. However, it is not the foundation case for most analysts for this year. Therefore, adhere to a free lunch on the contradictory traditions, here is the reason that the largest economy in the world will surrender to shrinkage in 2025.

The argument has two components. First, even before the opening of US President Donald Trump, the American economy was weaker than many. I explained why in Pillar In August and in a previous edition of this newsletter, “Exposing American exceptional“.

Secondly, “Trumponomics” has further guessed the look by introducing stagnation forces and the risk of the financial market. This is the focus of the newsletter today.

Let’s start with consumers. Rememberment: High spending has been raised by debt and expenses on basics such as food, housing and health care. The serious wings on credit cards balances reached the highest level at the end of last year at the end of last year, where high interest rates are increasingly pressing.

The White House agenda will add an insult to the injury by collecting taxes at the top. The proposed duties on Mexico and Canada (now on a temporary stop), in addition to those already in China, will raise the rate of effective tariffs in the United States to its highest level since 1943, according to what he said. Budget Laboratory in Yale. It is believed that higher price levels may cost families up to $ 2000.

This is only a taste. More customs tariffs are expected. Although the president has a talent to pay the deadlines, the influence on feelings is already crying.

Confidence has decreased. Inflation and unemployment expectations increased. This is the fateful Triftta. Families are still trying to calm by 20 percent, and a rise after guardianship in the price level. It is worth noting that real consumption decreased in January for the first time in nearly two years. Careful spending behavior is now more likely.

After that, work. The tariff of tariffs and customs bases, and the broadest climbing in making turbulent policies and consumers is a strong mixture. Import duties have been assigned to raise costs and reprisal measures will suffocate international sales. But radical uncertainty also impedes companies’ ability to plan and adapt.

The effects actually appear in the indicators of commercial activity. The Goldman SACHS analyst index referred to a contraction in new sales, orders, exports and employment through manufacturing and services companies in February. The spending on manufacturing construction – which has risen under the law to reduce inflation and the chips law – also slows down with Planning cases Not clear under new management.

Expectations companies have also been afraid. The CAPEX intention index in BCA Research decreased in shrinkage lands. Historically, this slowdown has indicated.

Small company employment plans are also subject, according to the latest NFIB scanning. the Chilnger follow From the planned job cuts jumped by 245 percent in February.

Rememberment: Before Trump’s arrival, many exaggerate the extent of the “strong” labor market in America to the private sector’s dynamics. The government’s account, health care and social assistance for two -thirds of the new jobs that have been created since the beginning of 2023 (and a half degrees 151,000 are not added in February). Immigration has also strengthened the growth of labor since the epidemic.

Then comes the goals of the new management. In addition to the impact of uncertainty in the private sector, Evercore ISI estimates that the efforts to reduce costs in the public sector in Elon Musk can fly a total of half a million American jobs this year. In an extremist scenario, it can reach more than 1.4 million.

The planned campaign will add to non -documented immigrants, who represent at least 5 percent of the workforce, to job losses.

After that, this administration pushed the risks of the stock market up.

Before Trump’s arrival, the S&P 500 was already in both high evaluation complications and focus levels-with the market value of the 10 largest companies in a multi-contract height.

But the markets were less than the price to what extent the president will go with his political agenda, as it is clear from the recent correction in the US stock market to pre -election levels.

Last year, analysts suggested that the extended evaluations of the S&P 500 were not excessively worrying, as they reflect high profits and artificial intelligence promise. But optimism about profits will calm down now. Sales and investment plans have been ambiguous due to uncertainty, in artificial intelligence and so on. Many American companies earn large sums abroad, in countries that may launch trade wars against them. In other words, stock prices have a room for decrease.

If the president “only started” in his plans, his tolerance may be for more twice the stock market very high. However, the threat of the falling market has real economic implications: the shares of stocks for families as a percentage of their total assets are in a record.

Finally, the broader financial risks seem more likely (even if their probability is still low) and can push tightening in financial conditions.

Matt King, founder of Satori Insights, refers to potential operators that can reflect the “safe haven” mode of America (in which lower flights are linked to a stronger dollar and a decrease in the cabinet). “A mixture of concerns about financial lack of responsibility, feeding independence and some of the most extreme proposals. As part of the Mar Lago Agreement may make a trick.”

Management plans to connect the deficit with customs tariff revenues (especially if it stops) and the so -called government efficiency Ministry largely doubtful. American borrowing costs are already high; Financial indolence adds returns. The request of the US Treasury is facing other possible winds, such as the next increase in the issuance of the German Bond. It is easier to imagine that the United States has signed a vicious cycle of higher returns and larger debt expectations.

Then there are the risks on which Trump’s plans depend on: the institutional nature is to be encoded, the cancellation of random financial restrictions and the potential manipulation of dollars.

Markets do not know how The price of uncertaintyJust as Trump was last time in office. The rapid re -pricing of political risks can push the dynamics of sales in the bond and stock markets. This may then lead to liquidity problems.

How will Federal Reserve’s reaction be unclear as well. Looking at the unbelievable signs of the cooling economy last year, interest rates were very restricted in the second period of Trump.

Now, the prices are in a knot style. Poor growth expectations raise discounts. But with high inflation expectations and recent memories of high prices in the sky, the Federal Reserve may tend to be careful and maintain the high rates. In this case, growth expectations will become more. In fact, the preference of inflation growth is difficult for the Federal Reserve to evaluate it, which raises the risk of an error.

The result? Many analysts cut off the gross domestic product of this quarter, driven by storage storage imports in anticipation of definitions. Most of them expect this to rest in the second quarter (although Trump’s tariff for starting will continue to stimulate storage). Even so, with slowing activity and feeling, high financial risks and economics less than dynamic, it is difficult to see what can raise mood and stimulate growth.

Perhaps Trump tax measures supporting growth and canceling organizational restrictions? First, they have not started yet. Second, they will be compensated by the elements of anti -growth in its political agenda. Tax cuts will increase profits, but companies’ ability to do anything with gains will be limited due to uncertainty and high import costs. Red Red Reduction can support investment, but monitoring various new tariff systems and sculptures are in themselves a large additional regulatory burden.

It is possible to avoid contraction. But that will require Trump to restore the plans to import greatly and reduce his shooting style. How possible is this?

refute? ideas? Send me a message in Freeelunch@ft.com Or on x @Teapperikh90.

Food to think

Below is a reminder of the reason that the free lunch in the analysis of counter -residence on Sunday is a value. The last calls made on European stock marketsthe German economy and China It appears to be hitting the mark.