Economic Uncertainty Ahead

Ryan Heshmati

March 14, 2025

Fear is in the air. CNN’s Fear and Greed Index read 15 as of early morning March 14—extreme fear. The acceleration of tariff wars on multiple fronts, from China to Europe, has rattled markets. Though March 15 saw some rebounds, as of March 14, the S&P 500 was down nearly 10% over the previous 30 days, with the Nasdaq having fallen over a staggering 13%. With rapid losses in major indices, investors are surely concerned and fearful of what is ahead.

A major concern among many is that the United States economy is headed for a recession. With the burden of tariffs, despite President Trump’s best intentions to serve the economy, the American economy could suffer due to inhibition of trade and the potential onset of higher prices. CPI data for the month of January showed inflation down to just 2.8%, but that could all be out the window as a result of the large number of tariffs President Trump has imposed via executive orders.

President Trump has acknowledged that his economic policies could have some short-term pain but insists that the shifts will pay off as necessary components in bringing about what he calls the “Golden Age” of America. A more positive agenda item for the markets however is also looking like it has a strong path to viability: an extension of the Tax Cuts and Jobs Act marginal income tax rate reductions. With Republicans controlling both chambers of Congress and the presidency through budget reconciliation, the extension of the tax cuts is in an advantageous position, with its fate resting in the votes of many supporters.

The Federal Reserve’s next moves regarding interest rates will also be important to watch. On the one hand, with recession fears, an argument for rate cuts to stimulate the economy could be compelling. Conversely, fear of the return of rising prices, especially in light of Trump’s tariff approach, could appeal to risk aversion among the decision makers in the Fed.

Certainly, a significant lack of clarity greets investors as they try to navigate the markets in the current environment. The tariff situation, potential tax bills, and the Fed’s next steps could all shape economic performance sufficiently. Undoubtedly, markets are concerned, and understandably so. The commonly spread theory that President Trump was re-elected mainly on the issue of the economy raises the stakes even higher. Will his economic reshaping payoff? For the sake of our markets and Americans’ 401k returns, we should hope the answer is yes while remaining prepared for a much less economically positive outcome.