Trump's recession chess game? The pain and hope of the currency circle

Since Trump’s return to the White House, the calm of the U.S. economy and global markets has been quickly shattered. The U.S. stock and crypto markets experienced a sharp correction, shaking investor confidence, while the Atlanta Fed’s GDPNow model predicts that the U.S. GDP growth rate will plummet to -2.82% in the first quarter of 2025, raising fears of a “trading recession”. At the same time, a bold argument is circulating on Wall Street and in economic analysis circles: Trump may be deliberately creating a recession through tariff wars, cuts in government spending, and other policies to force the Federal Reserve to cut interest rates, optimize the $37 trillion national debt burden, and reshape the U.S. economy. This strategy will exacerbate downward pressure on the market in the short term, but if successful, it could lay the groundwork for long-term growth. Based on the latest data and analysis, this article delves into the possibility and potential impact of this “conspiracy”.

Red light on economic data: Recession signs are emerging

At the beginning of 2025, the US economic data showed weakness and became the focus of market attention. The Atlanta Fed’s GDPNow model shows that the GDP growth forecast for the first quarter of 2025 plummeted to -2.82% on March 3 from 2.32% on February 26, a 510 basis point cut in just five days. This is the worst outcome predicted by the model since the pandemic in 2020, suggesting that the economy could fall into contraction. Over the same period, consumer confidence fell to its lowest level since August 2021 (Bloomberg, 9 March 2025) and weekly jobless claims rose by 20,000, one of the largest increases in recent years (ZeroHedge, 5 March 2025). Equities were also under pressure, with the S&P 500 down 3.1% last week and the Nasdaq down 3.45%, their worst performance in six months (NPR, 10 March 2025).

These signals are not isolated incidents. A series of policies that Trump quickly introduced since taking office — including tariffs on Canada, Mexico and China, the Elon Musk-led Department of Government Efficiency (DOGE) layoff program, and a federal spending freeze — are seen as a direct driver of the economic slowdown. The Associated Press (March 9, 2025) noted that the measures “could hurt the economy more than fixing it,” while the New York Times (March 8, 2025) commented that economic forecasts worsened significantly due to “federal layoffs, tariff initiatives, and uncertainty over immigration policy.”

Trump’s “conspiracy”: a recession paves the way for interest rate cuts

Wall Street veteran and former Lehman Brothers trader Larry McDonald made a startling argument in a March 2 podcast: Trump is trying to reduce government debt pressure by creating a recession and forcing the Federal Reserve to cut interest rates. “You can’t curb inflation with massive fiscal spending, and the Trump team knows that,” he noted. They need a recession, which is the only way to lower interest rates and extend debt maturities. This is the only way out of the $37 trillion debt predicament, and there is no other way but to default. MacDonald calls it a “financial repression” strategy, in which interest rates are pushed below the rate of inflation to dilute the real cost of debt.

This view is not unfounded. Trump’s recent policies are highly consistent with this. The tariff war is seen as a key tool, with him not only putting pressure on Canada and Mexico to curb fentanyl inflows, but also planning to impose “reciprocal tariffs” on multiple countries from April 2 (Forbes, March 9, 2025). While these tariffs are intended to stimulate U.S. manufacturing, they could push up prices and dampen consumption, further dragging down economic growth. In addition, the DOGE program promoted by Musk has led to layoffs in government departments, raising labor market concerns. Time magazine (9 March 2025) reported that economists see Trump’s policy as a “key risk”, and Goldman Sachs even lowered its GDP growth forecast to 1.7% by the end of 2025 from 2.2% and expects tariffs to reduce growth by 1 percentage point (Forbes, 9 March 2025).

Trump himself is ambiguous about this. In an interview with Fox News on March 9, when asked if he expected a recession in 2025, he said, "I hate predicting things like that. We’re in a transition period because we’re doing big things to bring wealth back to the United States. While he did not deny the possibility of a recession, he emphasized long-term goals, suggesting that short-term pain was planned (Bloomberg, March 10, 2025).

The Game in the Debt Crisis: Trump’s Wrestling with the Federal Reserve

Trump’s tension with the Fed has been a long history, and at the heart of this game is interest rate policy. The U.S. national debt is already $37 trillion, and if interest rates remain at current levels, interest payments are expected to reach $1.2 trillion to $1.3 trillion in 2026, more than the defense budget (about $850 billion) and nearly a quarter of fiscal revenues (estimated at $5.1 trillion) (CBO, 2025 budget outlook). This means that the US needs to continue to “use debt for debt”, and the high interest rate environment will push up the cost of US debt and further dry up market liquidity.

Trump’s demands are clear: cut interest rates immediately to ease the debt burden and stimulate the economy. He openly called for a “rapid reduction in interest rates” at the Davos forum on January 23 (Reuters, January 23, 2025) and threatened to audit the Fed and even optimize its personnel structure. However, Fed Chair Jerome Powell said after the 30 January meeting that the current economic conditions are good and there is no need to rush to adjust policy (CNN Business, 30 January 2025). This disagreement pushes the two sides against each other.

McDonald estimates that a 100 basis point cut in interest rates could save about $400 billion a year in interest payments, while extending debt maturity through the issuance of 10- or 20-year bonds. This strategy presupposes deterioration in economic data, and Trump seems to be “inducing” this condition. @kingbull199 user of Platform X commented: “Trump deliberately created a recession, forced the Federal Reserve to cut interest rates, and then released a lot of water to pull up assets, and ultimately benefited a few people, including the Trump family.” "While this is a personal opinion, it reflects the market’s high level of vigilance about Trump’s motives.

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The long-term plot of a “mild recession”: the structural transformation of the economy

Nomura’s analysis further provides theoretical support for this strategy. According to market commentary (e.g., ZeroHedge, 5 March 2025), the Trump administration could trigger a “mild recession” by cutting government spending, jobs, and imposing tariffs in order to break the U.S. economy’s long-standing dependence on government spending and push the private sector to become a growth leader. While this transformation will exacerbate downward pressure on the economy in the short term, it may reshape the growth model in the long term.

The New York Times (March 10, 2025) quoted experts as saying Trump believes tariffs will make U.S. products more competitive, although many economists warn that this could lead to a rebound in inflation rather than a manufacturing resurgence. Commerce Secretary Howard Lutnick said optimistically on NBC’s Meet the Media (March 9, 2025): “The United States will never fall into recession, Trump will bring growth.” However, the market reaction was diametrically opposite: lower Treasury yields, shrinking manufacturing activity, and planned layoffs by small businesses showed a lack of investor confidence (Yahoo Finance, March 10, 2025).

Market & Global Implications: Short-Term Risks vs. Long-Term Opportunities

In the short term, Trump’s policies have sparked market turmoil. Tariff uncertainty has caused businesses to postpone investments, and consumers have reduced spending in anticipation of higher prices. Bloomberg (March 10, 2025) noted that a trade war could ripple through global supply chains, exacerbating economic pressures on allies. The Guardian (10 March 2025) warns that a persistent recession could trigger a ripple effect on the global economy.

However, if Trump succeeds in forcing the Fed to cut interest rates, the market could turn around. History has shown that low interest rates tend to spur a rally in the stock market and cryptocurrencies.

Conclusion: Danger and opportunity coexist

The jury is still out on whether Trump is deliberately creating a recession, but his policies have undoubtedly exacerbated downside risks in the short term. From tariffs to layoffs to open confrontation with the Federal Reserve, his strategy seems to point to a clear goal: a “transition period” in exchange for lower interest rates and debt optimization. This high-stakes gamble could keep the U.S. stock market and crypto markets under pressure, but if the Fed compromises, a massive rate cut could start a new boom.

Disclaimer: None of the above constitutes investment advice.

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