Here’s a number worth sitting with: the Atlanta Federal Reserve’s GDPNow model, which is the closest thing we have to a real-time read on economic growth is currently tracking Q1 GDP at negative 1.9%. Not slowing or stalling. Negative.
By the traditional definition, one more quarter like this and we’re in a recession. By any honest definition, we might already be in one.
Meanwhile, the Federal Reserve is still publicly focused on inflation. Jerome Powell, last seen telling Congress the debt problem is their problem, is holding rates steady while the economy quietly rolls over beneath him. From Reuters this week:
US trade deficit widens in February as imports offset record exports
WASHINGTON, April 2 (Reuters) – The U.S. trade deficit widened in February as a rebound in imports offset strong growth in exports, which increased to a record high, potentially keeping trade on track to subtract from economic growth in the first quarter.
The trade gap increased 4.9% to $57.3 billion, the Commerce Department’s Bureau of Economic Analysis and Census Bureau said on Thursday. Data for January was revised to show the deficit narrowing to $54.7 billion instead of $54.5 billion as previously estimated. Economists polled by Reuters forecast the trade deficit rising to $61.0 billion in February.
The BEA and Census Bureau are still catching up on data releases following last year’s government shutdown. Trade data continues to be volatile amid shifting policy.
The U.S. Supreme Court in February struck down President Donald Trump’s broad tariffs, which he pursued under a law meant for use in national emergencies. Trump, however, responded by imposing a global tariff for up to 150 days.
Trump has defended the tariffs as necessary to address the trade deficit and revive the nation’s industrial base, though 100,000 factory jobs have been lost since January 2025.
Economists expect the U.S.-Israeli war with Iran, which has led to shipping restrictions impacting goods ranging from energy products to fertilizers through the Strait of Hormuz, to reduce trade volumes.
Imports increased 4.3% to $372.1 billion in February. Goods imports rose 5.0% to $291.5 billion. They were boosted by imports of capital goods, which increased $7.8 billion, mostly reflecting computers, computer accessories and semiconductors. These imports are likely linked to artificial intelligence and the construction of data centers.
Imports of industrial supplies and materials increased $3.1 billion, mostly lifted by crude oil. Consumer goods imports rose $2.2 billion amid a $1.0 billion increase in pharmaceutical preparations. Imports of automotive vehicles, parts and engines increased $1.6 billion.
Exports jumped 4.2% to a record high $314.8 billion. Goods exports soared 5.9% to an all-time high of $206.9 billion.
Exports of industrial supplies and materials increased $10.2 billion to a record high, driven by monetary gold and natural gas. Exports of non-petroleum goods were also the highest on record.
The goods trade deficit widened 3.0% to $84.6 billion in February. When adjusted for inflation, the goods deficit increased $0.5 billion, or 0.6%, to $83.5 billion.
Trade subtracted from gross domestic product growth in the fourth quarter. The Atlanta Federal Reserve is forecasting GDP increasing at a 1.9% annualized rate in the first quarter. The economy grew at a 0.7% pace in the fourth quarter.
The goods trade deficit with China increased to $13.1 billion in February from $12.5 billion in January, while the shortfall with Mexico swelled $4.1 billion to $16.8 billion.
Exports of services increased $1.1 billion to a record $107.9 billion amid rises in travel, other business services, financial services and charges for the use of intellectual property. But exports of transport services fell.
Imports of services jumped $1.3 billion to an all-time high of $80.6 billion, boosted by charges for the use of intellectual property.
No Good Options Left
Powell is standing at a fork in the road, and both paths lead off a cliff.
Cut rates to rescue a contracting economy, and inflation, which is already running hot turbocharged by Hormuz shipping disruptions and a global tariff war, comes roaring back. The 1970s are the template for this. An economy that simultaneously contracts and inflates is called stagflation, and there is no clean policy response to it. The Fed’s entire toolkit was built for one problem at a time.
Here’s the other option: hold rates to fight inflation, and a -1.9% GDP print turns into something uglier. Corporate earnings get revised down. Layoffs follow. Credit tightens. The private credit funds already bleeding redemptions face a much darker landscape when the companies they lent to start missing payments.
Each scenario leads to the same destination.
The Tariff Trap
The trade data tells a story the administration doesn’t want told. Exports hit a record high. But imports surged too, driven by a scramble to front-run tariffs on computers, semiconductors, and AI infrastructure components. Companies weren’t buying because business was booming. They were panic-buying before the window closed…A one-time distortion that flatters February’s numbers and steals from future quarters.
And the 100,000 factory jobs lost since January 2025 deserve a moment of silence. The tariffs were supposed to bring manufacturing home. Instead they’ve raised input costs, disrupted supply chains, and delivered a jobs number that moves in the wrong direction. So far, the medicine is worse than the disease.
Now layer in Hormuz. Shipping restrictions on energy and fertilizers don’t show up immediately in GDP figures. These numbers will arrive with about an 12-18-month lag, first in producer prices, then in consumer prices, then in margin compression, then in layoffs. The February trade data is a snapshot from before the full Hormuz impact hit.
The deeper problem is one of compounding. Tariff disruption plus Hormuz plus a Fed frozen by conflicting mandates plus a private credit sector quietly gating withdrawals. These aren’t separate stories. They are symptoms of fiat destruction arriving from different directions, converging on the same moment.
History does not repeat. But it does tend to arrive wearing the same coat.
Recessions are never announced in advance. They’re recognized in the rearview mirror, usually six months after they started. By that point the exits are crowded and the Fed is cutting rates into a falling market, desperately trying to look like it has a plan.
