Trump's Unlikely to Get His Wish for an Economic Crash

Former President Donald Trump said on Monday that the U.S. economy may crash and that he hoped it would happen this year so that he can avoid the fate of Herbert Hoover, a president who came into power and soon after faced a troubled economy.

But economists told Newsweek that a crash is unlikely in 2024, even as growth slows amid tight financial conditions because of high interest rates instituted by the Federal Reserve to combat high inflation.

Trump, who failed in his reelection bid in 2020 against Joe Biden, is seeking the presidency again in 2024. He said in an interview on Lindell TV that the strength of the U.S. economy was a result of his policies while he was in power but that now things are deteriorating.

"We have an economy that's so fragile and the only reason it's running now, is it's running off the fumes of what we did," Trump said. "When there is a crash, I hope it's going to be during this next 12 months, because I don't want to be Herbert Hoover."

Hoover took office as president in early 1929 and in October had to grapple with a stock market crash that marked the beginning of the economic crisis known as the Great Depression.

Newsweek reached out to the Trump campaign via email on Tuesday morning for comment.

Economists suggest that while the economy may not expand as much as it did in 2023, a crash is unlikely. The economy has been grappling with the after-effects of the Federal Reserve's hiking of rates at the fastest clip since the 1980s to battle inflation that at one point hit a 40-year high. The jump in rates, which now stand at 5.25 to 5.5 percent, have pushed up borrowing costs and slowed business investments.

Over the last few months, inflation has slowed and the jobs market has demonstrated resilience. The inflation rate cooled to 3.1 percent as of November, down from 9 percent in the summer of 2022. On Friday, data from the U.S. Bureau of Labor Statistics showed that hiring continued in December as employers added 216,000 jobs and the unemployment rate stayed at 3.7 percent.

"The economy still looks pretty healthy. So, you know, a crash seems very unlikely," Mahir Rasheed, a senior economist at insurance firm Swiss Re, told Newsweek.

Slowing economy in 2024

Experts believe that as the economy continues to absorb the effects of elevated interest rates, growth in the U.S. will slow to below average, according to Michael Pearce, a lead economist at Oxford Economics, who also suggested that a crash was an unlikely scenario in 2024.

"Our outlook for the year is for growth of around one and a half percent, which would be below average, but it's certainly a long way from a crash," Pearce told Newsweek. "If anything, we've been revising our forecasts higher over the past few months. Really, it's getting harder to see what could push the economy into a recession in 2024."

With inflation easing, he suggested that the Fed, which held rates at its last meeting in December, may cut rates, which suggested the risks of a recession were receding.

Some analysts pointed out that the economy was still recovering from the COVID pandemic shock and the high borrowing costs that have resulted because of elevated interest rates could take a toll on the economy.

Nevertheless, the economic challenges the U.S. was seeing were nothing compared to what was seen during the financial crisis of 2008, for example, when the economy plunged into a deep recession that took years for the U.S to climb out of.

"The data doesn't tell us that this is going to be like the great financial crisis. So no, there's no data that supports that narrative," Jeffrey Roach, chief economist for North Carolina-based LPL Financial, told Newsweek.

"Perhaps there is a recession this year when the consumer pulls back the kind of a spending binge that they've been on for the last two years. But...the financial sector, banking sectors specifically, it doesn't have the stresses that...we saw going into the great financial crisis."

Roach pointed out that in December, small businesses, for example, expressed improved optimism going into 2024, a good sign for the economy. He added that with expectations that the Fed may cut rates in 2024 amid easing inflation, the economy will withstand the slowdown it may witness early in the year.

"Overall, as a year, 2024, we'll see the economy eke out some growth," he said. "We think the consumer, the economy as a whole, will regain its footing by the end of the year, but we could certainly be in for some choppy markets the first half of this year."

Some economists expect growth to slow to less than a percent in the fourth quarter of 2023 and tick up to 1.3 percent in the first quarter of this year as the effects of the Fed's high rates take hold.

"Consumer spending is expected to slow but not collapse," Diane Swonk, chief economist at KPMG, said in a note. "The housing market is expected to continue to contract, but not as sharply. Business investment is expected to stall, as profit margins are squeezed."

Swiss Re's Rasheed also suggested that the economy will slow to below 2 percent growth for the year but little evidence of a recession.

"We'll have to see how things play out, there is probably going to be a weak path for the economy. But we do think that we should be able to avoid a recession this year," he told Newsweek.

Outlook for jobs market

Part of the reason the economy has been resilient despite an environment of high interest rates is sustained hiring. Employers have continued to add jobs, with little sign of widespread layoffs, allowing workers to earn, spend and fuel the economy, analysts said.

And going forward, companies may continue to retain their employees as they await Fed policymakers to decide on rates.

"Businesses that are looking at cost-cutting decisions, we're still very much in this kind of wait and see...will there be a recession?" Rasheed said.

With the economy expected to slow, economists anticipate that the labor market will also witness a slowing pace of growth from the 200,000 jobs a month that were being added in 2023. The rate may come down to about 100,000 jobs a month on average in 2024, Pearce said.

"What we will see is the unemployment rate kind of bouncing around current levels or maybe even drifting a little higher," he said. "I'd be surprised if the unemployment rate continues to fall, but certainly I'm not expecting any big rise in the unemployment rate."

Pearce anticipated that the unemployment rate will hover around 4 percent, something that other experts also suggested would be the case. KPMG's Swonk forecast the unemployment rate to end the year at 4.1 percent.

"Anything above 4.5 percent in our view seems unlikely," Rasheed said.

A relatively strong jobs market will also mean less substantial slowdown in consumer spending, Pearce added.

"Without mass layoffs, it's really hard to see consumer spending, which is obviously a large majority of the overall economy, rolling over or falling sharply this year," he said.

The economists Newsweek spoke with also expected inflation to continue to ease and get near the policymakers' 2 percent target, which could spur the Fed to cut rates.

But analysts also suggested that a continuing strong economy could be a risk and may reaccelerate inflation and force the Fed, at the very least, to keep rates higher for longer.

This, along with geopolitical conflict, could be a potential danger to the U.S. economy in 2024, Pearce said.

"If you had a stronger-than-expected economy in the first half of the year, it could could spell bad news further down the line because it might mean that the Fed needs to leave rates tighter for longer, and then you'd get a lot more risks to the economy building," he said. But that's probably more a 2025 story than than something for this year."