White House dismisses U.S. recession fears- but Fed and IMF sound alarm over tariffs

European Markets Surge as Tariff Fears Recede and US Recession Talk Discounted

European stock markets experienced a significant upswing on Monday, as investors welcomed a partial easing of tariffs and a leading White House advisor downplayed concerns of a recession in the United States. This positive momentum followed robust trading sessions in Asian markets, signaling a global wave of optimism despite ongoing trade war anxieties.

Market Reactions to Eased Trade Tensions

Amidst fluctuating trade war dynamics, key European indices demonstrated strong gains. The FTSE 100 in London climbed by 2.1 percent, while Germany’s Dax and France’s Cac 40 rose by 2.9 percent and 2.4 percent respectively. Wall Street also saw an upward trend in early trading after the US administration decided to exclude smartphones, computers, and various electronic goods from the most severe ‘reciprocal’ tariffs. While these items avoid the 145 percent levy on imports from China, they will still be subject to separate semiconductor tariffs.

Expert Analysis on Market Sentiment

“Markets are seizing any indication of respite they can find,” commented Mitul Kotecha, a macro strategy expert at Barclays, highlighting the sensitive nature of investor confidence in the current economic climate.

The FTSE 100 has recovered nearly 6 percent over the last three trading days. However, it remains more than 5 percent lower compared to the beginning of April, reflecting persistent apprehension that escalating trade tensions between the US and China could precipitate a global recession.

Concerns Remain Despite Market Gains

Despite the day’s positive market movements, underlying economic anxieties persist. The head of the White House National Economic Council dismissed recession fears, countering warnings from Wall Street regarding a potential economic downturn.

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IMF and Federal Reserve Caution

The International Monetary Fund (IMF) recently issued a warning, stating that geopolitical risks have reached a multi-decade high, with escalating tit-for-tat tariffs posing a substantial threat to global financial stability.

Echoing these concerns, a high-ranking Federal Reserve official suggested that the central bank might need to implement significant interest rate reductions to bolster the economy if the US president proceeds with all threatened tariffs.

Christopher Waller, a Federal Reserve official, cautioned that US economic growth could markedly decelerate, potentially “slow to a crawl.” He added, “If the slowdown is considerable and even risks a recession, then I would anticipate favouring quicker and more substantial [rate] cuts than previously considered.”

Recession Probability Assessments

Financial analysts are increasingly evaluating the likelihood of an economic contraction. JP Morgan analysts have estimated the probability of a recession at 60 percent, while Goldman Sachs places it at 45 percent.

White House Downplays Recession Risk

In contrast to these warnings, Kevin Hassett, the White House national economic council director, dismissed concerns voiced by Wall Street regarding an impending downturn.

When directly questioned about the possibility of a recession this year, Hassett firmly stated, “100 percent not – 100 percent not,” emphasizing “very strong jobs numbers” and adding, “Everything’s through the roof.”

Market Strategist Views on Trade War Impact

Luca Paolini, chief strategist at Pictet Asset Management, offered a nuanced perspective: “The current US administration is clearly backtracking. Markets sense desperation to find a resolution, although the inflicted economic damage is not easily reversible.”

While European stock markets showed robust gains, concerns regarding the US economic outlook caused the dollar to fall to its lowest point in six months.

Oil Market and Global Economic Outlook

Concurrently, oil producing organization Opec has revised downwards its projections for oil consumption for the current year and the next, citing the impact of tariffs on global demand.

Bruce Kasman, head of economics at JP Morgan, commented on the recent shifts in trade policy: “The perceived easing of trade tensions may provide some relief, but we remain cautious. Halting trade between the world’s two largest economies inevitably causes widespread economic repercussions. We maintain our forecast of a 60 percent chance of a US and global recession.”

Gold as a Safe Haven Asset

Amidst economic uncertainty, gold is predicted to reach $4,500 per ounce this year, having recently achieved record highs.

Goldman Sachs analysts anticipate gold prices reaching $3,700 by the close of 2025. They also suggest that under extreme conditions, particularly if a global recession occurs due to the US-China trade war, prices could surge to $4,500. This forecast coincided with gold reaching a peak of $3,245 an ounce before slightly retreating.