Amid the ongoing tariff battle and the Federal Reserve's projections of higher inflation and lower growth, PIMCO has predicted a 30-35% chance of a recession, without the possibility of stagflation in the U.S. economy in 2025.
What Happened: Economist Tiffany Wilding, managing director at PIMCO, told Yahoo Finance that despite the uncertainties, the U.S. economy continues to be resilient and the private sector balance sheets continue to remain "really strong."
When asked about the Deutsche Bank survey, which pegged the odds of recession at almost 50%, Wilding responded by saying, "We would argue that recession risks are elevated in any given year. Just looking at historical instances of recession, you know, maybe there's a 15-20% chance of recession. We would say maybe it's a bit elevated than that, call it like 30-35%."
However, she added that "We think ultimately it would be light. We would come out of it relatively quickly."
Earlier this month, President Donald Trump did not rule out the likelihood of a recession and said the economy was in a "period of transition."
Why It Matters: While PIMCO doesn't predict a higher chance of a recession, Wilding added that a "stagflationary regime" was unlikely as well. She explained that the size of the tariffs isn't big enough to "drive a meaningful acceleration in inflation".
"Stagflation, I think more definitionally, is not just growth slowing and inflation being sticky. I think stagflation historically is characterized by you know, a higher inflation during an outright recession or contraction, and you know we're not projecting that," she said.
However, she acknowledged that Trump's protectionist policies that are likely to induce inflation were tricky for the monetary policy and there wasn't any possibility of a rate hike.
"I do think these policies still are a bit tricky for the Fed. The conversation that we're having is does the Fed cut or do they hold? When do they cut? And if they cut, how deeply do they cut? I think it's important to keep in mind just in terms of the distribution of outcomes, we're still not talking about interest rate hikes here."
Talking about tariffs during the Fed's conference, Jerome Powell described the likely inflation caused by the former as "transitory," which drove the stock market higher. He also reaffirmed that the Fed's goals are focused on the dual mandate given to them by Congress: maximum employment and stable prices.
Price Action: The SPDR S&P 500 ETF Trust
On Tuesday, the Dow Jones futures fell by 0.08%, whereas the S&P 500 and Nasdaq 100 declined by 0.09% and 0.08%, respectively.
