The U.S. economy contracted in the first quarter of 2025 for the first time in three years, triggering concerns about an impending recession. However, many economists urge caution before drawing conclusions. While the decline in GDP—driven in part by a surge in imports ahead of new tariffs—marks a notable inflection point, several key indicators like employment and consumer spending remain relatively resilient.
Still, market volatility, declining business confidence, and weakening consumer sentiment are adding pressure. For financial advisors and RIAs, understanding the range of expert views on the likelihood and potential contours of a recession is essential for strategic client communication and portfolio positioning.
Claudia Sahm: "Recession Isn’t Imminent, but the Risks Are Real"
Claudia Sahm, chief economist at New Century Advisors, believes the U.S. is on a path toward a potential recession, but it’s not inevitable. “We’re seeing some softening in policy, including a 90-day pause on certain tariffs,” she noted. “If that continues, it could pull us off the recession track.”
Sahm expects economic slowing, even absent a full-blown downturn. Advisors should prepare clients for a cooling labor market and more modest growth, with any potential recession being “shallow, not a collapse.” For RIAs, the focus should remain on risk management and client reassurance.
Paul Krugman: Don’t Overreact to Early GDP Data—But Watch Trade Policy
Nobel laureate Paul Krugman warns against overinterpreting Q1’s GDP contraction. “Measured GDP also declined in early 2022, and we didn’t have a recession then—it was likely statistical noise,” he wrote in a recent Substack post.
Still, Krugman highlighted the risk of an exogenous shock stemming from tariff policy. “The abrupt nature and magnitude of Trump’s tariffs could act like a COVID-style supply shock,” he cautioned. Advisors should monitor inflation and supply chain indicators closely and adjust inflation-sensitive exposures accordingly.
Torsten Sløk: 90% Probability of a Trade-Induced Recession
Apollo Global Management chief economist Torsten Sløk assigns a 90% chance to what he terms a “Voluntary Trade Reset Recession” by summer 2025. He points to missteps in tariff implementation and global trade tensions as the primary catalysts.
Yet Sløk believes policy shifts could avert a full recession.
“There’s an opportunity for the U.S. to forge trade agreements with Mexico and Canada to stabilize North American supply chains,” he said. Advisors should consider geographic diversification and evaluate portfolio exposure to trade-sensitive sectors.
Olu Sonola: Stagflation Is the Bigger Threat
According to Olu Sonola, head of U.S. economic research at Fitch Ratings, the current trajectory doesn’t yet guarantee a recession—but escalating tariffs could change that. “If tariff rates remain at current levels, we see a higher risk of stagflation—weak growth combined with higher inflation,” Sonola stated.
For wealth advisors, the implications of stagflation include diminished real returns on fixed income and increased client concerns over purchasing power. Strategies that preserve real wealth—such as TIPS and hard assets—may warrant renewed attention.
Diane Swonk: A Shallow Recession Is Already Underway
KPMG chief economist Diane Swonk takes a more bearish stance, projecting a mild recession from Q2 through year-end. “Recovery is likely to be weak unless policymakers intervene with substantial stimulus—though that could provoke bond market backlash,” she warned.
Swonk flagged consumer sentiment and declining job security as early warning signs. “The drop in confidence is in recession territory,” she noted. “Lower-income households, already depleted of pandemic-era savings, are especially vulnerable.”
Advisors serving mass-affluent and high-net-worth clients should stress-test plans across household income tiers and account for the varying impacts on discretionary spending, housing, and debt servicing.
Cory Stahle: Recession Psychology May Become Self-Fulfilling
Indeed Hiring Lab economist Cory Stahle believes recession expectations could become a self-fulfilling prophecy. “With fears dominating the narrative, economic actors may behave as if a recession is already underway,” he said.
Stahle points to the chilling effect of recent trade policies on business investment. “Rolling back some of the changes might ease concerns, but we may already be past the point of psychological return.”
Advisors should be mindful of sentiment-driven behavior among clients and help counterbalance emotionally driven decisions with data-based planning.
Eric Rosengren: Recession Odds Have Risen
Former Boston Fed President Eric Rosengren estimates a 50–60% probability of a recession, up significantly from earlier in the year. “Tariffs are a dual threat—they reduce growth by depressing investment and employment, and they increase inflation,” he said.
For RIAs, this dual threat underscores the importance of balancing growth and inflation hedges while revisiting strategic allocations to international equities, commodities, and inflation-linked securities.
Dana Peterson: Slower Growth, but Recession Not Base Case
Dana Peterson, chief economist at The Conference Board, maintains a more neutral stance. “We expect weaker growth, higher inflation, and a gradual rise in unemployment, but not a recession as our base case,” she said.
Peterson credits recent strength to solid fundamentals and continued industrial policy support. Still, she advises close monitoring of fiscal levers and global trade dynamics. Advisors should help clients understand that slower growth is not necessarily synonymous with portfolio contraction.
David Kelly: A Mild Recession Could Trigger Fiscal
Response
David Kelly, chief global strategist at J.P. Morgan Asset Management, sees a mild recession as the most likely scenario. “We’ve skirted the edge for some time, but a shallow downturn later this year is increasingly probable,” he wrote.
Kelly expects a mild recession to create space for moderate fiscal stimulus in 2026. He also anticipates a potential policy pivot away from restrictive tariffs and hiring freezes in federal employment.
Advisors should look ahead to 2026 when positioning client portfolios—identifying assets likely to benefit from post-recession policy recalibration and renewed government spending.
Desmond Lachman: Confidence Is Eroding Fast
Desmond Lachman of the American Enterprise Institute anticipates a recession driven by eroding investor and consumer confidence. “Tariffs are acting as a tax increase, raising prices while policy uncertainty depresses capital expenditures,” he said.
He also noted that weakening faith in U.S. economic leadership is weighing on asset prices across the board. “Equity and bond markets are reflecting skepticism about American exceptionalism,” he warned.
For RIAs, this presents an opportunity to help clients refocus on long-term fundamentals, reassert asset-class diversification, and reevaluate international exposure in light of geopolitical tailwinds and headwinds.
Mark Hamrick: Watch the Consumer
Mark Hamrick, senior economic analyst at Bankrate, says the trajectory of consumer spending will be the key variable. “If consumers retrench amid price increases and rising uncertainty, contraction could deepen,” he noted.
He also highlighted the divergence between technical recession definitions and consumer perceptions. “Clients often feel like they’re in a recession simply because of reduced purchasing power, even if GDP hasn’t officially declined for two consecutive quarters.”
This gap underscores the importance of client communication. Advisors should proactively explain economic data versus personal financial experience, helping clients navigate headline noise with perspective.
Takeaway for Advisors
While the Q1 GDP decline is a flashing yellow light, economists are far from unanimous about a full-blown recession. The range of opinions spans from mild contraction to stagflation risk to delayed downturns—and many see a path to avoiding the worst-case scenario.
For RIAs and wealth advisors, the focus should be on:
Reassessing portfolio resilience across inflation and growth shocks
Managing client expectations amid heightened economic uncertainty
Monitoring policy developments around tariffs and fiscal stimulus
Stress-testing financial plans for varied macroeconomic outcomes
The economic road ahead is uncertain, but that uncertainty underscores the value of sound, strategic advice.
