(Bloomberg) -- Former Treasury Secretary Lawrence Summers said there's almost a 50-50 likelihood of the US tipping into a recession this year due to a range of policy steps from the Trump administration that are undermining confidence.
"We've got a real uncertainty problem, it's going to be hard to fix that," Summers said in an interview on Bloomberg Television's Wall Street Week with David Westin. "We're looking at a slowdown relative to what was forecast, almost for sure, and a serious, near 50% prospect of recession."
Summers pointed to a combination of major immigration restrictions, federal government layoffs and damage to US competitiveness from President Donald Trump's tariffs as having caused a sea-change in the nation's economic outlook.
Federal Reserve policymakers, when they meet next week, "need to highlight the very substantial toll that uncertainty is taking on the economy," said Summers, a Harvard University professor and paid contributor to Bloomberg TV. They should also "note that they've only got very limited capacity to respond to that uncertainty."
Trump has already imposed a 20% surtax on Chinese imports since taking office in January, and is preparing a slew of "reciprocal" duties on trading partners for an April 2 announcement. Further tariff hikes are looming on Wednesday on steel and aluminum.
While the Trump administration has said the economy may suffer a "disturbance" as its policies take hold, it will amount to a transition to growth that's fueled by the private sector and domestic manufacturing rather than federal spending.
"Transition period — doesn't it sound like a lot like the word transitory?" Summers said, referring to the Biden administration's dismissal of the 2021 pickup in inflation as a blip that would go away. "I don't think the idea that this is some kind of transition period is going to work out very well at all."
Summers said that even if policymakers wanted to adopt a protectionist framework, the current plans for tariffs are counterproductive because they raise the cost of inputs that American factories need.
Latin America
"Your chances would be much better subsidizing their outputs than raising the price of manufacturers' inputs," said Summers, who served at the Treasury in the Clinton administration and as National Economic Council director under President Barack Obama. "It's misguided and confused protectionist policy — even if one accepted the protectionist philosophy."
Summers said Latin American economic history illustrates the dangers of protectionism.
"What the studies show is that it can go either way in terms of its impacts in the short run, but it's almost always bad over the medium-to-long run," he said. "Unless there's a reversal in policy, I would expect this situation to get more serious."
Economists including those at Morgan Stanley and Goldman Sachs Group Inc. have in recent days lowered their estimates for economic growth for 2025. They also saw rising risks of a recession, while not making a downturn their base case.
"One thing I've observed is when they start being revised in a direction, there tends to be momentum — and all the revisions are going one way at this point," Summers said.
He also warned that Fed interest-rate cuts may do little to shore up growth if it's being hurt by business uncertainty over economic policies and household fears over things like Social Security benefits and the development of new medicines.
"When there's so much swirling uncertainty and the props from under your investment might be removed by some new policy, coming out of some decree, you're going to wait before you invest," Summers said. "And the exact level of the interest rate isn't going to matter very much."
(Updates with further comments and context in final five paragraphs.)
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