Citigroup Chief Economist Nathan Sheets said Tuesday that the United States faces a 40% to 45% chance of recession as the economy adjusts to the impact of new tariffs introduced by President Donald Trump.
According to Reuters, Sheets expects the U.S. economy to grow in the second quarter, driven by a surge in consumer spending ahead of the tariffs taking effect.
However, he is said to believe that the negative consequences of the trade actions are likely to be more strongly felt in the latter half of 2025.
The largest impact on U.S. growth is expected during the second half of the year, Sheets said during a call with clients, reported by Reuters.
Sheets described the tariffs as a stagflationary shock to the economy, although he said a more traditional recession, without a sharp rise in inflation, is more likely than full stagflation.
Despite growing concerns around U.S. policy stability and global reactions, Sheets reassured that the dollar remains the world’s reserve currency.
Reuters also noted that Sheets sees the risk of a large-scale selloff of U.S. Treasuries by foreign governments as low, citing the losses such countries would incur from such actions.
In addition, Sheets said he does not believe former President Trump would attempt to remove Federal Reserve Chair Jerome Powell if re-elected, saying, “This Rubicon will not be crossed,” according to Reuters.
Sheets also warned that if current disputes permanently damage confidence in U.S. governance and suggest that major policy shifts could occur with each administration, the country’s long-term economic potential could suffer, and U.S. potential GDP growth could drop.