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Are We in a Recession?
According to a traditional definition, the U.S. is not currently in a recession — but fears are rising.
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Updated · 4 min read
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There’s no recession right now, but some economic indicators are raising red flags that signal trouble could be ahead:
Growth in the first quarter was negative. An April 30 report from the Bureau of Economic Analysis showed the economy declined in the first quarter of 2025. It’s the first GDP decline since the first and second quarters of 2022. Two quarters of negative growth typically signals the economy is in a recession.
Consumer sentiment has declined. Recent consumer sentiment indicators say that consumer concerns are largely tied to recent economic policies by the Trump administration, including tariffs. Then the University of Michigan’s Index of Consumer Sentiment registered its final reading for April at 50.8 — a mere 0.8 percentage points above the historical low of 50 in June 2022. The Conference Board Survey’s Expectations Index — measuring consumers’ short-term outlook for income, business, and labor market conditions — fell to 54.4 in April, which is well below the threshold (80) that projects a possible recession ahead.
Consumer spending behavior is fluctuating. The latest data shows that consumer spending shot up 0.7% from February to March, according to personal consumption expenditures (PCE) data from the Bureau of Economic Analysis released on April 30. Based on the types of goods consumers were buying, the increase likely reflects panic buying ahead of President Donald Trump’s tariffs. Higher consumer spending isn’t necessarily a good sign for the economy: Consumer spending has increased in the two quarters prior to every recessionary period since the 1960s, according to the Dallas Federal Reserve.
President Donald Trump’s recent tariff actions are escalating a global trade war that officials say is largely responsible for recent recession projections. At an event on April 4, Federal Reserve Chair Jerome Powell said that while recession risks are increasing, there’s no clarity yet. “I realize that the uncertainty is high, and what we've learned is that the tariffs are higher than anticipated, higher than almost all forecasters predicted. We still don't know where that comes to rest though, and we're just going to have to see that through,” he said.”
Economists at major banks are also beginning to project an economic downturn ahead. On April 4, JP Morgan Chase placed its expectations of a recession in 2025 at 60%. On April 7, Goldman Sachs raised its odds of a U.S. recession from 35% to 45% — a 10 percentage point increase in the span of one week. On April 11, BlackRock CEO Larry Fink told CNBC, “I think we’re very close, if not in, a recession now.” And on April 19, Torsten Slok, chief economist at Apollo Global Management, said there was a 90% probability of a recession in 2025 unless Trump pulls back his tariffs.
On March 10, former Treasury Secretary Larry Summers posted on X that 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.”
Meanwhile, Moody’s Analytics Chief Economist Mark Zandi says he thinks the risk of a recession in 2025 has doubled from earlier this year. On March 30, Zandi posted on the social platform X “I’m raising my odds that a recession will begin sometime this year to 40%, up from 15% at the start of the year.” He says he believes “things are sure to get worse.”
Zandi pointed to a number of reasons for his updated projection including:
Trump’s tariff actions, which have sparked a trade war.
The mass federal job cuts made by the so-called Department of Government Efficiency, or DOGE.
Zandi said that recession is less likely than not because layoffs are low, while both jobs and income continue to grow. However, he added this caveat, “...as long as the tariffs and DOGE cuts continue to mount, so too will the odds of recession.”
» MORE:
Trump won’t rule out recession
Trump stoked recession fears following a Fox News interview that aired on March 9 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 March 11, 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.”
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.
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.
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%.
Be smarter with your spending in 2025 with the NerdWallet app
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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%.
Learn more about recessions
Find out how recessions can impact your money and how to manage your risk.
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.
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.
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.
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.
, 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.
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.
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.
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.
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.
