Treasury Secretary Scott Bessent warned that recent economic data may indicate a looming U.S. recession, urging policymakers to prepare for a potential slowdown in consumer spending and hiring.
At a Glance
- Treasury projects reduced GDP growth in Q4 2025 due to softer consumer demand
- Bessent cites weakening labor market participation rates as a risk factor
- Inflationary pressures persist in housing and healthcare sectors
- Federal Reserve policy decisions expected to play key role in 2026 outlook
- Business investment in manufacturing shows signs of plateauing
Early Warning Signs
In a recent interview, Treasury Secretary Scott Bessent expressed concern over several economic indicators pointing toward slower growth. According to Bessent, consumer spending—a key driver of the U.S. economy—has started to taper off following two consecutive quarters of modest gains. The Treasury’s internal projections show a likely decline in GDP growth during the fourth quarter of 2025, reflecting both domestic and global economic headwinds.
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Bessent pointed to weakening labor force participation rates, particularly among younger and mid-career workers, as a signal that the labor market may be losing momentum. While unemployment remains relatively low, job creation in key sectors such as manufacturing and retail has slowed, raising concerns about the sustainability of current employment levels.
Inflation Pressures Remain
Even as growth projections soften, inflationary pressures have not fully subsided. Housing and healthcare costs continue to rise faster than the overall inflation rate, creating challenges for both households and policymakers. Bessent noted that these pressures could limit the Federal Reserve’s flexibility in adjusting interest rates to stimulate growth without reigniting broader price increases.
The Secretary emphasized that inflation’s persistence in these sectors is partly structural, linked to supply constraints and long-term demand trends, rather than solely cyclical. This dynamic complicates traditional recession-response measures, such as aggressive rate cuts, which could have mixed effects in the current environment.
Policy Decisions Ahead
Looking toward 2026, the Federal Reserve’s policy stance will be critical in determining whether the U.S. can navigate a “soft landing” or slide into a more pronounced downturn. Bessent urged a balanced approach that accounts for both the risk of a recession and the ongoing battle against inflation. He also called for targeted fiscal measures aimed at supporting business investment, which appears to be plateauing in sectors that have been major growth drivers since 2023.
Global economic conditions are adding to the uncertainty, with slower growth in Europe and uneven demand recovery in Asia potentially affecting U.S. exports. Treasury analysts are watching these external factors closely, as they could compound domestic weaknesses in the quarters ahead.
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