US economic slowdown fears escalate as trade war and debt woes weigh on markets

The US economy is facing increasing fears of a slowdown, with stock markets spiralling downward amid growing concerns over President Donald Trump’s escalating trade war. The Nasdaq Composite has entered correction territory, falling more than 10% from recent highs, while the S&P 500 teeters on the edge of the same level. The Dow Jones Industrial Average is also showing signs of a downturn, reflecting heightened uncertainty about the nation’s economic future.
The latest data from the Federal Reserve Bank of Atlanta’s GDP now model paints a grim picture, revising its first-quarter growth forecast from a 2.4% expansion to a 2.8% contraction, spurring fears that a recession could be on the horizon, according to an ET report.
While most analysts still view the chances of an immediate recession as moderate, the combination of escalating tariffs, unpredictable fiscal policies, and a hawkish Federal Reserve stance is creating a storm of anxiety across financial markets.
Trump’s trade war sparks market panic
A major factor contributing to market volatility is President Trump’s aggressive trade policies. On Tuesday, the US administration imposed a significant increase in tariffs on steel and aluminium imports from Canada, raising duties from 25% to 50% in retaliation for Canadian levies on electricity exports to the US Additionally, the administration has enacted a 20% tariff on all Chinese imports, with threats of further duties on goods from Mexico and Europe, deepening concerns among investors.
In response to these developments, Wall Street strategists have revised their forecasts. J.P. Morgan’s chief economist has now raised the probability of a US recession to 40%, up from 25% just a month ago. Meanwhile, Goldman Sachs has reduced its 2025 US growth forecast from 2.4% to 1.7%, warning that the tariff hikes could shave up to 1% off GDP if other nations retaliate. As businesses scale back on hiring and capital investment, these trade tensions are further dampening economic sentiment.
Adding to the uncertainty, President Trump acknowledged the potential for an economic slowdown, stating in a Fox News interview that “there is a period of transition because what we’re doing is very big,” but refusing to rule out the possibility of a recession.
Dalio warns of debt crisis
Hedge fund titan Ray Dalio, founder of Bridgewater Associates, has raised alarm bells over the structural weaknesses in the US economy, particularly the rising national debt. Dalio warned that the country’s ballooning debt burden, now exceeding $36.2 trillion (122% of GDP), could lead to severe economic consequences.
“We have a very severe supply-demand problem when it comes to US debt,” Dalio said in a CNBC interview on Wednesday. He noted that the US government would need to sell large amounts of debt, but the world may not have the appetite for it, which could trigger “shocking developments,” including debt restructuring, geopolitical pressure on creditors, or even austerity measures.
Dalio’s comments coincide with signals of distress in bond markets, where the yield curve has flattened sharply, often seen as a precursor to an economic downturn. The spread between two-year and 10-year Treasury yields has widened to its highest level since September 2024, adding to investor concerns about economic instability.
Tech sector takes the hardest hit as growth slows
The technology sector has borne the brunt of the recent market declines, with the Nasdaq Composite falling nearly 9% in 2025 so far. Wall Street analysts have revised their revenue growth expectations for major tech companies, citing weaker consumer demand, cautious corporate spending, and the ongoing uncertainty surrounding global trade.
Indian IT stocks, heavily reliant on US corporate clients, have also suffered. The Nifty IT index has entered bear market territory, with Tata Consultancy Services (TCS) seeing a nearly 23% drop in shares, and LTIMindtree losing more than 33% of its market value. Morgan Stanley has downgraded several Indian IT stocks, warning that a potential US recession could significantly reduce demand for outsourced technology services.
Federal reserve faces dilemma as inflation and recession fears collide
The Federal Reserve is caught between conflicting pressures. On the one hand, consumer inflation showed signs of easing in February, with the Consumer Price Index (CPI) rising 2.8% annually, slightly below expectations. However, the effects of tariffs on imported goods could drive future price increases, compelling the Fed to keep interest rates elevated for longer.
While the Fed has kept rates unchanged in its last two meetings following a 50 basis-point cut in 2024, policymakers have signalled a cautious approach moving forward. Boston Fed President Susan Collins stated that while risks are increasing, it’s still unclear whether a recession is imminent.
A prolonged period of high interest rates could place additional strain on an already fragile economic outlook, especially as corporate debt levels continue to climb.
Global consequences loom as US slowdown threatens worldwide impact
Should the US slowdown materialize into a full-blown recession, the global economy could face significant challenges. Emerging markets may experience capital outflows as investors flock to safe-haven assets, while key trading partners such as Europe, China, and India may suffer demand shocks due to declining US imports.
For now, investors are closely watching Washington and the Federal Reserve, hoping for clarity on the next steps that could determine whether the US economy simply slows or plunges into a full recession.
(Disclaimer: The opinions, analyses and recommendations expressed herein are those of brokerage and do not reflect the views of The Times of India. Always consult with a qualified investment advisor or financial planner before making any investment decisions.)