Although concerns about a U.S. recession reached a fever pitch earlier this year, those fears have recently cooled. In their mid-year forecasts, many economists now say the economy is unlikely to contract in the second half of 2025—but that doesn’t mean the risk is completely off the table.
The anxiety peaked back in April when President Donald Trump announced a new wave of aggressive “reciprocal” tariffs on several major trading partners. At the time, economists warned that a rapidly escalating trade war could push inflation higher and chill economic growth. Some even went as far as to say a recession was more likely than not.
But in the months since, the administration has walked back or paused some of its harshest proposals, and that’s helped ease the pressure. Still, plenty of tariffs remain in place, including a 10% levy on imports from most countries, a hefty 50% tax on steel and aluminum, and a 25% duty on foreign cars.
Most experts agree that these tariffs probably won’t singlehandedly tip the U.S. into a recession—but they’re already acting as a drag on the economy. The bigger issue, perhaps, is the uncertainty. When companies and consumers don’t know whether prices will spike again next month, they delay decisions. Big-ticket purchases and major investments get pushed off.
“It’s like driving through fog,” said Sean Snaith, an economics professor at the University of Central Florida. “You haven’t crashed, but you’re definitely slowing down.”
Another looming risk is the Middle East. If tensions between Israel and Iran escalate further, there’s a real chance oil prices could spike, sending ripple effects through the global economy. Higher oil prices raise transportation and production costs, squeeze household budgets, and tend to cool down spending across the board.
So far, headline numbers still look solid. The unemployment rate stands at 4.2%—not far from full employment—but cracks are beginning to show. Job openings have been trending lower, partly due to federal spending cuts and layoffs linked to government efficiency efforts.
“The labor market is slowing in 2025, largely due to tariff concerns and federal belt-tightening,” said Gus Faucher, chief economist at PNC. “We’re looking at weaker job growth and a modest rise in unemployment, but we don’t expect a recession—at least for now. That could change quickly if business sentiment turns sharply.”
And business sentiment is definitely cautious.
Clara Mitchell, who runs a mid-sized fashion retail chain in Manhattan, recently hit pause on plans to open three new stores. “It’s not that I’m pessimistic,” she said, “but when your shipping costs could double overnight and customers are holding back, you need to rethink expansion.”
That kind of hesitation is widespread. In a recent analysis, Goldman Sachs economists Ronnie Walker and David Mericle noted that while C-suite chatter has turned more cautious, it hasn’t yet reached panic levels. Goldman’s baseline forecast sees slower hiring, weaker investment, and GDP growth below potential, but no technical recession. They do expect inflation to tick up above 3% from its current mid-2% range.
Independent forecaster Robert Fry is a bit more wary. Even if the U.S. avoids an outright recession, he warns that the economy may feel the effects of earlier behavior. Many businesses and consumers rushed to make big purchases last year, trying to beat future tariffs. That pulled demand forward, which could mean a slump in durable goods sales and capital investment in the months ahead.
“If conflict in the Middle East pushes oil prices up significantly, recession risks could come roaring back,” Fry added.
For everyday Americans, that uncertainty is already shaping decisions.
Michael and Sophie, a couple in Chicago, had planned to buy a new car and renovate their kitchen this summer. In the end, they only went through with the kitchen update. “It’s not that we can’t afford the car,” Michael said, “but who knows what gas prices will look like in a few months? If it hits six bucks a gallon, that changes everything.”
The economy, in short, is stuck in a “not great but not terrible” place. The worst-case scenario has been avoided for now, but between the unpredictable trade policy, geopolitical tensions, and skittish business leaders, no one’s celebrating just yet.
As one analyst put it, “This isn’t driving in a storm. It’s driving through thick clouds with poor visibility. You might be fine, but you better keep both hands on the wheel.”