Is a U.S. Recession Brewing in 2025? The Signals Are Getting Harder to Ignore

The Federal Reserve has held interest rates steady. The stock market remains volatile. And corporate leaders, economists, and households alike are growing increasingly concerned that the U.S. economy is drifting toward a recession.

While the labor market remains relatively strong and inflation has cooled from its 2022 peak, new cracks are beginning to show — from early-stage mortgage delinquencies to rapidly deteriorating consumer confidence and declining business investment. Add in renewed trade tensions and rising debt service costs, and the outlook for the remainder of 2025 looks increasingly fragile.

Here’s a breakdown of the recession warning signs flashing across the economy:

In President Trump’s second term, hopes for a pro-business renaissance were high. But for many companies, especially multinationals, that narrative is unraveling.

The return of aggressive tariffs, especially on Chinese goods and key industrial inputs, is creating pricing uncertainty and squeezing margins. The S&P 500 has lost over $4 trillion in market value this year alone, and behind the scenes, many corporate leaders are sounding the alarm in earnings reports.

The overall picture: companies that typically perform well in late-cycle environments are preparing for slower growth, tighter margins, and reduced capital spending.

The Conference Board’s March reading of consumer confidence fell to 92.9, the lowest level in more than a decade. The Expectations Index, which tracks views on the economy over the next six months, plunged to 65.2 — well below the critical threshold of 80 that typically signals a recession.

This drop isn’t just psychological. It can drive behavior.

When households start to believe a recession is coming, they cut back spending, delay major purchases, and increase savings — all of which reduce overall demand and make a downturn more likely. It’s a feedback loop the Fed and White House are watching closely.

Recent credit card data already shows slowing discretionary spending in categories like travel, dining, and electronics. And with inflation still elevated in essentials like food and insurance, consumers are signaling that they’re feeling tapped out — even if wages have nominally increased.

One of the clearest early warning signs is emerging in the housing market — specifically among first-time homeowners with FHA-backed mortgages.

According to Moody’s Analytics Chief Economist Mark Zandi, delinquencies in this group are ticking higher, pointing to stress among lower- and moderate-income households. “This is the group that tends to feel the downturn first,” Zandi said. “They are financially stretched and highly exposed to rising costs.”

While higher-income borrowers are still relatively stable, the spread between FHA and conventional delinquencies is widening — an early signal of stress that could spill over into consumer credit and broader demand.

The Fed has paused its hiking campaign, and markets are still pricing in one or two cuts this year. But tariff-related cost increases, sticky services inflation, and a still-tight labor market give the central bank little room to maneuver.

Fed Chair Jerome Powell has indicated the Fed is in "wait-and-see" mode. But if tariffs raise import prices and inflation reaccelerates, the Fed may be forced to hold rates higher for longer — just as growth slows.

That’s a worst-case combination: stagflation risk — stagnant growth with inflation that won’t fully go away. An articlepublished on this site just yesterday pointed to a Bank of America survey of fund managers that found 71% of that group expecting stagflation to be the dominant theme over the next 12 months.

According to recent Federal Reserve data, private sector debt declined by 2.4% of GDP in late 2024 — the largest contraction since the 2008 financial crisis. While deleveraging can be healthy in the long run, it tends to coincide with periods of weak investment and lower spending.

Households are tapping the brakes. Non-financial businesses are pulling back on capital investment. State and local governments, faced with flat tax revenue, are trimming budgets.

The combined effect: less credit flowing through the economy, which dampens growth and raises recession odds.

This time last year, recession calls were fading. Today, they’re back — and louder.

While a soft landing remains possible, the current mix of slowing demand, rising costs, and deteriorating sentiment means that a recession in late 2025 is no longer a hypothetical — it’s increasingly part of the base case.