The Trump administration is capitalizing on the possibility that parts of the economy are in recession by increasing pressure on the Federal Reserve to cut interest rates, hoping to ensure that the central bank takes the blame for any economic weakness.
Treasury Secretary Scott Bessent and Stephen Miran, who was appointed to the Fed's Board of Governors by President Trump and is temporarily on leave from his job as head of the White House Council of Economic Advisers, made negative comments this week about the state of the world's largest economy. Mr Bessent even went so far as to say that some sectors were already shrinking. He didn't provide sector details, but high mortgage rates have put pressure on housing and related industries such as construction.
“I think there are sectors of the economy that are in recession,” Mr. Bessent said on CNN on Sunday. He described the economy as being in a “transition phase” due to a cut in government spending to reduce the deficit. He called on the Fed to support the economy by cutting interest rates.
Mr. Bessent's comments increased pressure on the Fed and deflected blame from Mr. Trump should the economy ultimately enter a downturn, reinforcing a strategy in place since the start of the year. Because the administration has imposed aggressive tariffs on nearly all of America's trading partners and cut government spending, potentially slowing growth, it is trying to shift blame squarely to the Fed in the event of an economic downturn.
“This is all being blamed on the Fed,” said Joseph Brusuelas, chief economist at accounting firm RSM.
For months, Trump has criticized Jerome H. Powell, the Fed chairman, for cutting interest rates too slowly. This included branding Mr Powell as “Mr Too Late” and a “stupid”. Over the summer, he intensified his pressure campaign on the central bank and took more aggressive steps to reshuffle the top executives responsible for policy decisions.
Mr. Trump is in a legal battle to be decided by the Supreme Court after he tried to oust Lisa Cook, a governor, from office over mortgage fraud allegations. In August, he appointed Mr. Miran, then one of his top economic advisers, to the Fed's board of governors after one member, Adriana Kugler, resigned before her term expired.
Since taking office at the central bank in September, Mr. Miran has pushed hard for a significant cut in interest rates. In an interview with The New York Times on Friday, he warned that the Fed risked causing an economic downturn if it did not do so.
“If you keep monetary policy so tight for an extended period of time, there is a risk that monetary policy itself will trigger a recession,” he said. “I don’t see any reason to take that risk if I’m not worried about rising inflation.”
But that view is not widely shared by other Fed officials and most Wall Street economists. At the last two political meetings, Mr. Miran was the only dissenter to argue for a larger half-point cut. Last month, most policymakers favored a quarter-point cut, while one official disagreed with maintaining interest rates because of his concerns about inflation.
Mr Bessent's mention of recession is unusual for a finance minister; Downturns can become self-fulfilling when consumers and businesses back down in anticipation of a decline.
Despite Mr. Bessent's comments, the Treasury said in its statement on the economy to the Treasury Borrowing Advisory Committee this week that it does not expect a recession.
“Looking ahead to the next few quarters, the outlook for the U.S. economy faces both upside and downside risks,” Treasury economists wrote. “However, economists estimate the overall risk of a recession to be relatively low.”
They found that the federal government shutdown and the decline in federal employment hurt growth. The labor market had shown some worrying signals in recent months before the shutdown effectively led to a failure in government statistics. Employment growth had stalled and the range of sectors actually creating jobs had narrowed.
These trends appear to have continued. And yet Mr. Powell and other officials such as John Williams, president of the Federal Reserve Bank of New York, have not expressed much concern about the economy slipping into recession.
Mr. Powell, at a news conference after the Fed's latest interest rate-setting meeting, questioned whether there would be enough support for a rate cut in December, at a time when the Fed's goals of low, stable inflation and a healthy labor market are in tension.
As Mr. Bessent and Mr. Miran have claimed, the real estate market remains under significant pressure, a trend that began in 2023. But the Fed's ability to cut interest rates, which would support the housing market through lower mortgage rates, is significantly limited because of price pressures resulting from Mr. Trump's tariffs.
Matthew Martin, a senior U.S. economist at Oxford Economics, said he doesn't think a recession is the most likely outcome for the economy, but acknowledged that the Fed is heading down a “very narrow path” and that some cracks have appeared in the economy's foundation.
Some industries were hit harder than others amid uncertainty over tariffs and other Trump administration actions. Perhaps most striking, Martin said, was the decline in manufacturing, despite government efforts to revive it.
“This is an area where tariffs increased uncertainty and reduced demand,” he said.
Factory activity fell for the eighth straight month in October, according to survey results released Monday by the Institute for Supply Management. Manufacturers also continued to cut workers.
Mark Zandi, chief economist at Moody's Analytics, said that while the economy is not in recession, it appears to be trying to avoid one. In an analysis last month, he noted that 22 states and the District of Columbia were in or near recession and that the economy's fate could depend on how California and New York fare in the coming months.
“Only a few industries are still increasing the number of employees, especially healthcare and hospitality,” said Mr Zandi. “Construction, manufacturing, technology, finance, government and many professional services are losing jobs.”