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Wells Fargo warns of rising recession and stagflation risks in US economy
A soft landing remains the most likely scenario for the US economy, but the threat of a recession and stagflation is growing, lurking like a predator in the shadows. According to analysts at Wells Fargo, this is the first time since 2022 that the risk landscape has shifted so markedly.
In its latest report, Wells Fargo notes that in the first quarter of 2025, the probability of a soft landing has fallen to 40%, down from 44% previously. At the same time, the chances of a recession and stagflation have both climbed to 27% and 28%, respectively.
While this shift is not yet cause for alarm, the analysts warn that the trend bears watching. They advised that the situation should be monitored over the next few quarters, particularly if the probability of stagflation or a recession continues to increase.
The outlook remains clouded by uncertainty surrounding US trade policy. Against this backdrop, Wells Fargo foresees current tariffs easing slightly, stabilizing around 15% through 2026. Still, the organization does not rule out a moderate stagflationary shock.
Analysts forecast a bumpy path for GDP growth this year, driven by a slowdown in both consumer and business spending. This uneven pattern is expected to continue into the early part of the second quarter of 2025. If tariffs remain elevated, inflationary pressures could intensify, significantly increasing the risk of a recession or stagflation.
Wells Fargo cautions that the Federal Reserve may not be able to shield the economy from the fallout of tariff-driven shocks. With both risks now running high, analysts advise investors and policymakers to track macroeconomic indicators closely in the quarters ahead.
Published 13 May 2025
© InstaFintech Group
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© InstaFintech Group
