Are We in a Recession?

Updated on March 11

Trump won’t rule out recession

President Donald Trump stoked recession fears following a Fox News interview that aired on Sunday when he didn’t deny the possibility of a recession. He told Fox News, “I hate to predict things like that. There is a period of transition, because what we’re doing is very big. We’re bringing wealth back to America. That’s a big thing. And there are always periods of, it takes a little time. It takes a little time, but I think it should be great for us.”

Trump’s presidency has been marked by volatility in the markets, largely due to his will-he-won’t-he tariff policies. The S&P 500 reached all-time highs following Trump’s re-entry to the White House but has since dropped; the index is now down 2.6% since Inauguration Day.

During a press briefing on Tuesday, Press Secretary Karoline Leavitt was asked directly if the White House can assure Americans that there won’t be a recession to which she responded, “We are in a period of economic transition.”

Chances of a recession in 2025 are rising

On March 10, former Treasury Secretary Larry Summers posted on X that he saw a real possibility of a recession in 2025. said there was close to a 50-50 chance of a recession in 2025. He wrote, “I would have said a couple months ago a recession was really unlikely this year. Now, it’s probably not 50/50 but getting close to 50/50. There is one central reason. Economic policies that are completely counterproductive.”

There’s no recession right now, but some economic indicators are raising red flags that signal trouble could be ahead:

GDP forecasts are negative. A forecasting tool published by the Atlanta Federal Reserve shows negative growth for the first quarter of 2025; it expects gross domestic product (GDP) to contract by rate of -2.8%, according to data released on March 3. If the forecast is correct, it would be the first quarter where GDP declined since the first and second quarters of 2022.

Consumer sentiment has declined. The Conference Board Survey, released on Feb. 25 shows that consumer concerns are largely tied to recent economic policies by the Trump administration, including tariffs. The Conference Board Survey’s Expectations Index — measuring consumers’ short-term outlook for income, business, and labor market conditions — fell to 72.9 in February. It’s the first time in eight months that the Expectations Index fell below the threshold (80) that projects a possible recession ahead.

Consumer spending is down. The latest data shows that consumers aren’t spending like they once were. Spending declined 0.2% from December to January — the first time in nearly two years when spending decreased from one month to the next, according to the personal consumption expenditures (PCE) data from the Bureau of Economic Analysis released on Feb. 28.

Though the economy occasionally sputtered in the wake of the pandemic, it has certainly been resilient — and now, in 2025, the U.S. is not currently in a recession, according to a traditional definition.

In fact, the current state of the U.S. economy is quite strong, according to most measures.

Even with tumultuous events, such as the 2023 failure of three U.S. banks, the nation has not tipped into recession — and certainly not a depression, either. A depression is an extended economic breakdown, and we have not seen signs of that kind of pain. (See recession vs. depression.)

The definition of a recession

The conventional benchmark has been that two consecutive quarters of a generally slowing economy defines a recession.

That definition was achieved in the first six months of 2022 as part of a shallow economic decline. In the first quarter, the economy shrank 1.6%, then improved, though still fell 0.6% in the second quarter due to lower inventory spending, housing investments and federal and state government spending.

Bureau of Economic Analysis. Gross Domestic Product (Third Estimate), Corporate Profits (Revised Estimate).

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However, the Bureau of Economic Analysis, an agency embedded in the U.S. Department of Commerce, estimates that in the first quarter of 2024, the economy grew at an annual rate of 1.3%.

Bureau of Economic Analysis. Gross Domestic Product, First Quarter 2024 (Second Estimate) and Corporate Profits (Preliminary). Accessed Jun 12, 2024.

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What has the Fed done?

The Federal Reserve plays a big role in trying to stabilize the economy, in part by adjusting the interest rates paid by both businesses and consumers. The Fed may increase the federal funds rate to try to cool inflation and lower rates to make borrowing cheaper and stimulate the economy. It's a tricky balance, and the Fed has made some significant moves in the last few years:

2022: In an attempt to combat rising inflation, the Fed rate increased seven times — from a range of 0.25% - 0.50% in March to 4.25% - 4.50% in December. 2023: The Fed increased rates four times and left them unchanged four times, ending the year at a 5.25% - 5.50% target range. 2024: The Fed continued to pause the hikes throughout the year before beginning to make cuts in September in response to cooling inflation. 2025: The Fed paused rates at its January meeting. The current target range is 4.25% - 4.50%.

How long do recessions last?

Historically, recessions have lasted anywhere from two months to several years, according to the National Bureau of Economic Research. But our current economic climate presents unique circumstances that make it difficult to draw a direct comparison with past events.

Unemployment is still low, but we hear more talk of layoffs and business expense cutting each week. The wars in the Middle East and Ukraine are another concern.

Economic cycles are impossible to predict, so it's best to be financially prepared.

Frequently asked questions

Do interest rates go up or down in a recession?

The Federal Reserve’s rate actions are intended to tame whatever factors are influencing economic conditions. When inflation rises, the Fed raises the federal funds rate in order to slow consumer spending. When there is a recession, or even a threat of a recession, the Fed may lower interest rates in order to stimulate the economy. That’s because the federal funds rate impacts interest rates for things like mortgages, auto loans and credit cards. The lower the interest rate, the more appealing the product is for consumers.

But interest rate cuts are not intended to bring about a recession. The Fed raised rates from March 2022 to July 2023. The current federal funds rate has been in place since then. The Fed is poised to cut rates in response to an economy that has leveled out — not because a recession is nigh.

» MORE: What is an emergency rate cut?

Do home prices go down in a recession?

A number of factors go into the price of homes, but during a recession they generally go down. That’s largely because home prices are impacted by supply and demand — when demand is weaker, sellers often lower prices to entice home buyers. Demand is weaker for homes during a recession because people are less likely to want to make large purchases.

However, home price slashing doesn’t always happen during a recession. During the 1990 recession home prices were stagnant and then declined slightly. In the 2001 recession, home prices increased. During the Great Recession, home prices dropped significantly. Finally, during the brief coronavirus recession in 2020 housing prices began to rise then skyrocketed in the aftermath.

Do mortgage rates drop in a recession?

Like home prices, mortgage rates tend to drop during a recession largely due to a decrease in demand among buyers. The rates also tend to decline in reaction to federal funds rate cuts by the Federal Reserve, which often happen during a recession in order to stimulate the economy.

» MORE: How the federal reserve affects mortgage rates

Do food prices go down in a recession?

Food prices are, inherently, volatile. They’re subject to consumer demand, supply-chain disruptions, geopolitical strife, tariffs on foreign imports, weather and disease. During a recession food prices tend to drop to entice consumers to make purchases.

During the Great Recession, for example, the purchase of sale items rose dramatically, according to a 2015 analysis by the National Bureau of Economic Research.

Food prices are currently higher than they were before the coronavirus pandemic. Inflation has slowed since 2022 highs, but prices remain elevated for food overall. However, food prices for individual items tend to move differently depending on outside factors. Egg prices, for example, have risen primarily due to the avian flu. Meanwhile beef prices have been impacted by drought, high grain prices and rising operating costs due to high interest rates.

Do treasury bonds go up in a recession?

Treasury bonds fluctuate in response to the federal funds rate and short term interest rates. During a recession, interest rates typically drop. In response, bond prices increase while bond yields decrease. In other words, when the price of bonds increases, bonds will earn less. As you might expect, investors are typically less inclined to purchase bonds when they’re more expensive and yield less.

Inversely, during periods of economic growth bond prices will decrease — making them more affordable — and the yields will increase, which means the bonds will earn more.

Getting ready for a recession

There are a few ways to deal with current economic challenges and prepare for future ones. Starting or beefing up an emergency fund can help you face financial setbacks without going into debt.

Now may also be the appropriate time to look closely at your expenses, adjust your spending and explore resources to get help paying bills.