Top U.S. economist warns of 65% chance of ‘stagflationary’ recession

Economist Adam Posen Warns of 65% Risk of ‘Stagflationary’ Recession in the U.S.

Tariffs and trade uncertainty seen as key drivers of inflation and economic slowdown

Adam Posen, a prominent U.S. economist and president of the Peterson Institute for International Economics, has warned that the United States faces a 65% chance of entering a recession—one that could take the form of stagflation, a rare and troubling combination of high inflation and stagnating growth.

In a recent speech, Posen—who previously served at the Federal Reserve and the Bank of England—expressed concern that recent trade policies and economic tactics employed by the Trump administration may trigger the most significant stagflationary shock the country has seen in decades.

Inflation seen as inevitable — recession likely

“We may get recession, we may not, but we are going to get inflation either way,” Posen stated. His outlook centers on the persistence of tariffs, even if new trade agreements are reached. These tariffs, he argues, will push up prices, elevate inflation, and drag down growth — the classic conditions for stagflation.

Stagflation is a rare but economically damaging scenario, marked by rising prices and either stagnant or contracting economic output. The U.S. last faced such conditions in the late 1970s and early 1980s, a period characterized by high unemployment, soaring energy costs, and slow recovery.

Uncertainty eroding investment and spending

Posen also criticized the Trump administration’s economic approach, suggesting that its unpredictable policy shifts and combative trade stance have introduced a sustained level of uncertainty. This, in turn, discourages both consumer spending and business investment, regardless of efforts to cut taxes or deregulate industries.

He drew a parallel with the United Kingdom’s post-Brexit experience, noting that the prolonged economic uncertainty following its 2020 departure from the European Union has had long-term impacts on growth and investor confidence.

“The radically different economic policies pursued by President Trump,” Posen said, “sever long-standing international relationships and make America appear less predictable and reliable as a trading partner.”

Global repercussions and protectionist backlash

According to Posen, the global response to U.S. trade policy has been increasingly protective. He warned that countries are more likely to form new alliances that minimize their dependence on U.S. markets, reducing America's economic leverage and isolating it from cooperative recovery efforts.

Disruptions stemming from trade wars could also result in shortages of critical goods, further driving inflation. Meanwhile, domestic efforts to cushion industries impacted by tariffs—through subsidies or federal spending—would only increase fiscal strain and potentially stoke additional inflation.

Inflationary risks and the Fed’s tightrope

Posen cautioned that the Federal Reserve has already lowered interest rates too aggressively, even though inflation remains above target. If inflation picks up, the central bank may be forced to abruptly reverse course, rapidly hiking rates to regain control — a move that could place further pressure on the economy.

“This would only magnify the damage,” he added, suggesting that a drawn-out recovery period may follow if stagflation takes hold.

A long road to recovery?

If the stagflation scenario materializes, Posen believes that repairing the economic damage could take several years. This outlook hinges not only on monetary policy adjustments but also on restoring global trust and recalibrating trade dynamics.

While forecasts are always subject to change, Adam Posen’s remarks add to growing concerns among economists that the U.S. economy may be headed into unfamiliar and difficult territory — one shaped by policy-driven shocks rather than organic market cycles.

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