What you need to know about a possible recession

Updated 1:49 p.m. ET, August 21, 2019

3 Posts

Sort by

10:02 a.m. ET, August 21, 2019

Why the Trump administration is looking at possible tax cuts

From CNN's Kaitlan Collins, Maegan Vazquez and Donna Borak

President Trump said Tuesday that the administration is looking at possible tax cuts, but reiterated that the US economy is still growing and remains very far from a recession.

"We're looking at various tax rate deductions but I'm looking at that all the time ... that's one of the reasons we're in such a strong economic position. We're, right now, the No. 1 country anywhere in the world by far as an economy," Trump told reporters.

"Payroll tax is something that we think about and a lot of people would like to see that, and that very much affects the workers of our country," Trump said, but cautioned that he's "not looking to do anything at this moment" as it relates to those potential tax cuts.

But despite Trump's public-facing vociferousness about the strength of the economy on his watch and aides stating they have no concerns about a recession, officials have discussed the possibility of a potential payroll tax cut to stave off anxiety over an economic slowdown in recent days.

What experts say: Tax policy analysts argue the timing of a payroll tax cut when unemployment is at a historic low and the economy is on solid ground would be a waste of ammunition in the event of a future downturn.

"There's no economic reason for it right now. Unemployment is extremely low and the economy is slowing a little bit, but it's slowing from an artificially higher rate from the last round of tax cuts," said Benjamin Page, a senior fellow at the non-partisan Tax Policy Center.

9:55 a.m. ET, August 21, 2019

What we know about the US deficit

The White House's Office of Management Budget has predicted that the deficit will exceed $1 trillion for the entire fiscal year, which ends on September 30.

The nonpartisan Congressional Budget Office in May had predicted a slightly smaller shortfall of $896 billion for the year, with deficits rising above $1 trillion starting in 2022.

President Trump promised during the 2016 election to eliminate the federal debt.

But but the country's debt has been piling higher under the Trump administration in part due to a $1.5 trillion tax cut signed into law in 2017 along with a massive spending package passed by Congress.

Budget deficits are the norm in Washington: The United States has run a budget deficit for nearly two decades straight. The last time it recorded a budget surplus was between 1998 and 2001. The last time before that: 1969.

9:55 a.m. ET, August 21, 2019

Here's a look at the top 5 risks that could set off a US downturn

From CNN's Donna Borak

Fears of a brewing global recession were renewed this week as markets whipsawed over President Trump's trade war with China as well as disappointing economic data from both Germany and China.

The US economy, for now, remains on solid ground.

But here's what could set off a downturn:

A pullback in consumer spending: The money Americans spend each day on coffees, cars and clothing helps to account for about two-thirds of economic growth. But worries about a future downturn can also have the effect of becoming a self-fulfilling prophecy. As consumers start to worry about the possibility of a worsening economy, it's usually followed by a desire to quit spending as much and delay bigger purchases.
An escalation with China: Trump's on-again, off-again trade war with China has left US importers — as well as farmers hit by Beijing's retaliatory tariffs — unsure about what comes next. That has already slowed investment decisions by US businesses, and will likely continue for some time.
A global slowdown: Five of the world's biggest economies are now at risk of a recession — and the spillover effect could eventually drag the US economy down, too. The International Monetary Fund last month cut its forecast for global growth this year to 3.2%, the weakest rate of expansion since 2009. It also downgraded its expectations for 2020 to 3.5%.
Too little inflation: Inflation has remained historically low both in the United States and around the world. It's one of the reasons that Federal Reserve Jerome Powell has cited for cutting rates for the first time since the 2008 financial crisis. Central bankers consider low inflation dangerous because it tends to weigh on interest rates, giving them less room to juice the economy during a recession. That's what happened in Japan, which has struggled for years to kickstart growth.
The big unknown: Brexit: The decision by Britain's new prime minister, Boris Johnson, to abandon efforts to negotiate a "soft Brexit" with the European Union has created additional global economic uncertainty. Johnson has pledged that the UK would leave the European Union on October 31 with or without a deal, raising concerns about shortages of food and medicine.