① Adam Posen, director of the Peterson Institute for International Economics (PIIE), warned that due to the trade war initiated by the Trump administration, the USA might suffer the most significant "stagflation" impact in decades; ② Posen believes the possibility of economic recession has risen to 65%, and even if Trump reaches agreements with several countries, tariffs may remain unchanged, pushing up prices, exacerbating inflation, and slowing economic growth.
Adam Posen, director of the Peterson Institute for International Economics (PIIE), recently warned that due to the trade war under the Trump administration, the likelihood of an economic recession has increased, and the USA may face the largest "stagflation" shock in decades.
"We may enter a recession, or we may not, but in any case, we will face inflation," he stated in a recent speech.
However, Posen, who has served at both the Federal Reserve and the Bank of England, warned that he believes the possibility of an economic recession has risen to 65%.
PIIE is the world's leading independent think tank studying globalization and economic policy, and Adam Posen graduated from Harvard University in the USA with a Ph.D. in political economy and government. He has served as a visiting scholar and advisor at the Federal Reserve, the European Central Bank, and Deutsche Bank. Since September 2009, he has been a member of the Monetary Policy Committee of the Bank of England overseeing Exchange Rates and has also advised multiple US government departments, the European Commission, the Cabinet Office of Japan, the UK Cabinet Office, and the International Monetary Fund.
"Stagflation" risk.
He further pointed out that even if Trump reaches agreements with several countries, tariffs may remain unchanged. These measures will push up prices, exacerbate inflation, and slow economic growth—leading to a period of economic stagflation.
Stagflation refers to an economy facing both high inflation and economic weakness or even negative growth simultaneously. The last time the USA experienced stagflation was in the late 1970s and early 1980s, during which the economy was in severe turmoil.
Posen stated that even if the Republicans further reduce taxes and regulations, households and businesses may not increase spending and investment due to the long-term uncertainties created by the Trump administration.
He cited the United Kingdom as an example, pointing out that the British economy has been unstable since the country exited the European Union in 2020, due to the immense uncertainties arising from the breakup with its largest trading partner, the EU.
Posen indicated that President Trump's "radically different" economic policies, which include constant threats against other countries, have severed decades-long economic ties with all major allies of the USA, leading to further uncertainty. As a result, countries are more likely to unite to protect themselves from the repercussions of US actions instead of aligning with the USA.
He emphasized that all the damage caused by the trade war and Trump's strategy would lead to shortages of critical commodities and services in the USA, thereby driving up prices and inflation.
Moreover, he added that efforts to mitigate the damage from tariffs may also result in the Trump administration spending more money, which could further exacerbate inflation. At the same time, other American companies benefiting from tariffs will have greater power to raise prices for customers due to reduced competition from foreign rivals.
Posen concluded that considering the inflation rate is still high, the Federal Reserve's rate cuts have been too aggressive. Once prices begin to rise again, the Federal Reserve's interest rates may lag behind the data curve. The result is: the Federal Reserve may be forced to rapidly and significantly raise interest rates, thereby increasing pressure on the USA's economy.
"If all of this becomes reality, the (USA economy) will take years or longer to repair the damage," he said.
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