The Federal Reserve has historically acted as an independent body overseeing U.S. monetary policy and financial regulation. With mounting trade war tensions, stubborn mortgage rates, and volatile financial markets, most major banks have projected that the U.S. will be in a recession at some point this year.
The possibility of an economic downturn has rattled markets, households, and businesses, as many brace for the impact of widespread layoffs, rising inflation, and unpredictable financial markets.
🏦 🏡 Don’t miss the move: SIGN UP for TheStreet’s FREE daily newsletter 🏦 🏡
Many have speculated that growing economic instability and the Trump Administration’s pressure on Fed Chair Jerome Powell will get the central bank to cut interest rates again.
Shark Tank veteran, investor, and outspoken financial commentator Kevin O’Leary believes it’s not time to panic about the economy — yet. However, how the U.S.-China trade war plays out will play a major role in how the Fed reacts this year.
Kevin O’Leary shares surprising prediction for the US economy, despite trade war tensions
When the Trump administration announced blanket tariffs on hundreds of U.S. trade partners, global markets tumbled, losing $10 trillion globally. Though markets have since rebounded, tumult and investor uncertainty remain.
JP Morgan, Goldman Sachs, and other heavy hitters updated their economic forecasts, with nearly all firms confirming 2025 recession fears. Consumer confidence has plummeted to its lowest level since the Covid era, and anxious Americans plan to spend less in response.
However, investor and media personality Kevin O’Leary believes that recession fears may be exaggerated.
More on interest rates:
- The surprising reason mortgage rates are up despite interest rate cuts
- Fed chair Jerome Powell issues warning on inflation, weak housing market
- Dave Ramsey shares a major mortgage, interest rate strategy now
In a post on X, formerly known as Twitter, O’Leary highlights that a U.S. recession has been looming for years, but has never actually materialized.
“We’ve been talking about recession now for four years in a row. Forecasters of recessions have been wrong for four years straight,” he wrote. “Probabilities of 32 to 55%, that’s interesting, but we are not in a recession right now. It really depends on how long these tariff wars go on for.”
Though the U.S. isn’t currently in an economic recession, a prolonged trade war with China or major trading partners poses a significant risk to the nation’s financial standing.
Kevin O’Leary raises a major question for the Fed on interest rates
CME FedWatch estimates a 92.5% chance that the Fed will hold interest rates between 4.25% and 4.50% at the upcoming Fed board of governors meeting in May. However, there is a 60% chance the central bank will cut rates in June.
Despite consistent pressure from the Trump administration, Fed Chair Jerome Powell has remained adamant that the Fed will act independently and only cut interest rates when the economy requires intervention.
Related: Shark Tank’s Kevin O’Leary offers blunt words on buying a home now
O’Leary has voiced support for an independent Federal Reserve, but speculates that an ongoing trade war with China will eventually force the Fed to act.
“The giant question mark, and certainly this is on Powell’s mind when he refuses to drop rates, is how long will the China situation last?” O’Leary continued.
“Because that one looks far more complicated. It’s not just trade and tariffs, it’s IP theft and access to markets and WTO issues. There’s a lot on the table with China.”
The likelihood of the Fed cutting interest rates is increasing as the year progresses, but it may come at the cost of economic stability.
Related: Veteran fund manager unveils eye-popping S&P 500 forecast
