The first 100 days of the second Trump administration has undoubtedly delivered a shock to the U.S. economy, but all the policy gyrations are not sufficient to cause a recession by themselves, according to Beacon Economics' latest outlook. Still, the new forecast now includes an increased probability of recession in the next 12 months.

Highlights from the latest report:

• Recession risk rising: Beacon Economics sees a 30% chance of a recession in the next year, lower than the 45% average in the Wall Street Journal's latest survey, but the highest the firm has estimated since the pandemic.
  
  
• Growth likely to resume in short term: The forecast anticipates better growth in the second quarter of 2025, a point of view supported by strong consumer spending and employment numbers.
  
  
• Explosive underlying imbalances: The U.S. economy is overheated due to structural imbalances that make up the foundational strength of U.S. household finances—a massive asset bubble and an exploding federal deficit.

"We're most worried about how the instability brought on by the administration's actions will impact severe structural problems that have been building for years," said Christopher Thornberg, Founding Partner of Beacon Economics and the outlook's author. "The imbalances forming today are as profound and dangerous as they were in the runup to the Great Recession."

• Congress worsening the situation: Amid record deficits, the Republican controlled legislative branch is shredding budgetary process norms in order to extend and expand tax cuts from President Trump's first administration, ignoring fiscal responsibility.

• Public vs. private debt: Unlike the Great Recession, which was driven by household debt, today's risks stem from unsustainable public borrowing. But just like the Great Recession era, America's consumption is still being paid for by strong inflows of foreign capital.

• Foreign money fuels America's spending: The U.S. relies heavily on capital inflows to sustain its deficits. In 2024 alone, the nation imported $1.25 trillion in capital. If foreign investors lose faith and pull out, rising rates could devastate the U.S. fiscal position.

• A strong dollar is critical: If the dollar weakens, interest rates could spike, leading to spiraling deficits, spending cuts, tax hikes, and in the worst possible case, default.

• President Trump's erratic policies create uncertainty: The President's tariff threats and reversals have shaken markets but haven't yet triggered lasting damage.

The full report can be accessed here.