Investing.com -- Wall Street veteran Ed Yardeni lowered the probability of a recession to 35%, reversing a March increase that was driven by concerns over President Donald Trump’s sweeping tariffs.
“The Godot recession may be back in 2025,” Yardeni wrote, referencing his long-held view that a widely anticipated downturn might never materialize.
Initially triggered by fears over aggressive monetary tightening, the recession narrative has now shifted to “Trump’s Tariff Turmoil,” Yardeni said. But despite a recent spike in market-based recession odds, he remains unconvinced that a downturn is inevitable.
Economic indicators have sent mixed signals. The Index of Leading Economic Indicators has pointed to contraction, while the Index of Coincident Economic Indicators continues to hit record highs.
April’s payroll data also helped soothe concerns. “Friday’s jobs report boosted our confidence in the labor market’s resilience,” Yardeni noted.
Market pricing had reflected growing anxiety after the White House announced a 145% tariff on Chinese imports and a 10% baseline duty on most other countries. Yet Trump’s decision to postpone some tariffs appears to have eased fears.
As such, Yardeni has now cut the odds of a recession back to 35% from 45% as he believes “that China and the U.S. both may be ready to suspend their tariffs on each other while they negotiate a trade deal.”
He also cited political considerations as a factor, noting that Trump may be motivated to resolve trade tensions ahead of the midterm elections to help Republicans preserve their congressional majorities.
While acknowledging ongoing risks, such as weakening business surveys and persistent uncertainty around China policy, Yardeni maintains that consumer spending—buoyed by retiring Baby Boomers—and stable corporate investment in areas like cloud and onshoring are key supports.
Meanwhile, April’s data showed payroll employment rising by 177,000 and earned income proxies hitting record highs.
In light of the market rebound and reduced recession risks, Yardeni floated the idea of revisiting his S&P 500 year-end target. However, he prefers to stay on the sidelines for now due to a “deteriorating” earnings outlook and valuation headwinds.