By Claudia Sahm

About the author: Claudia Sahm is the Chief Economist at New Century Advisors and a former Federal Reserve economist.

President Donald Trump has countered recession predictions, which have jumped as high as 90% in the wake of his "Liberation Day" tariff announcement, by asserting a recession may be a necessary short-term pain on the path to long-term economic gain. Trump is correct in suggesting that a recession -- the period in which the economy is contracting -- would likely be short-lived. In the post-war era, the average length is just 10 months. The longest, the 2007-2009 Great Recession, was a year and a half. The shortest, the early 2020 Covid-19 recession, was only two months.

However, the lingering pain inflicted by a recession isn't short-term. An economic downturn would make it harder to move government employees to the private sector, weigh on long-term growth, and drive up the deficit. In other words, a recession would undermine the policy objectives the administration has said it wants to pursue, even leaving aside the economic risks of raising tariffs and slashing government.

A sharp rise in the unemployment rate is a feature of a recession, but the pain isn't limited to the unemployed. Slower wage growth, fewer opportunities to switch to better jobs, and less bargaining power in a weak labor market are costly for people with jobs. And weakness in the labor market during a recession tends to continue even after the economy expands again. The unemployment rate almost always peaks after the recession is over. Except for the Covid recession, all recessions since 1990 have been followed by so-called jobless recoveries.

The enduring personal costs of job loss in a recession can be enormous, equivalent to several years of earnings. Young adults who have the start of their careers disrupted by a recession suffe r even larger setbacks. In contrast, an economy close to full employment, as we have had in recent years, benefits all workers -- especially those on the margins, such as minorities, women, and those with less education.

A recession and a weak labor market would make it harder for Trump to shift employment from the government to the private sector. Laid-off federal workers, contractors, and grant employees would be more likely to simply be unemployed or leave the labor market than to find employment in the private sector. The last large-scale reduction in the federal government's workforce occurred during the Clinton administration, when the labor market was strong.

There are other costs to a recession still. Sixty percent of firms surveyed last year by the Federal Reserve Bank of Atlanta said they were most likely to reduce or pause capital expenditures in response to a recession, more than twice the share of firms that said they would lay off workers. Reducing business investment could limit the productive capacity of the economy and would likely slow the adoption of artificial intelligence. A loss of even a few tenths in trend productivity growth would add up over time.

A recession would also undercut the administration's goal of increasing U.S. manufacturing production. Tariffs may provide an incentive for on-shoring production, but that incentive would be overwhelmed by the fall in demand and rise in uncertainty in a recession.

The budgetary costs of a recession this year would far exceed the $150 billion in savings Elon Musk has claimed, without reliable evidence, that the Department of Government Efficiency has made since January. Using past recessions as a guide, a recession could add well over a trillion dollars to the federal debt, putting the administration even further behind in reducing the debt -- even if Congress didn't respond with stimulus. That is because federal tax revenue fall sharply in a recession, since income taxes are progressive and fall more than income and outlays on safety net programs like unemployment insurance expand as an automatic stabilizers.

Setting aside the fact that substantial long-term gains are unlikely from the president's policies of higher tariffs and government downsizing, a recession would make it even harder to achieve their stated goals and create lingering pain. In other words, there is no way to justify a recession.

Of course, a recession isn't a foregone conclusion. Unemployment remains low at 4.2%, and spending by businesses and consumers has held up so far, though the data are from before Liberation Day.

The Trump administration is uniquely positioned to improve the odds. Trump's most effective course of action would be to reverse the tariffs and stop dismantling the federal government. If he is unwilling to do so, he should at least adopt a better process -- greater clarity, longer timelines, and smaller changes. The pain of a recession is pain to avoid.

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April 21, 2025 12:54 ET (16:54 GMT)

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