Harvard economist Kenneth Rogoff is warning that the likelihood of a U.S. recession has increased substantially—and for reasons that differ from the traditional catalysts most investors and advisors typically monitor.
Rather than stemming from a structural financial shock, a major policy misstep, or a geopolitical crisis, Rogoff points to a growing psychological divide within the consumer base. In particular, he sees deteriorating sentiment among Americans disillusioned with President Donald Trump’s economic agenda—especially his aggressive use of tariffs—as a central risk that could trigger a confidence-driven downturn.
Speaking on the In Good Company podcast hosted by Nicolai Tangen, CEO of Norges Bank Investment Management, Rogoff emphasized that this potential recession may not follow conventional patterns.
“It’s not about an oil crisis or a financial collapse,” he explained. “The mechanism this time could be consumer psychology—especially among the half of the electorate that didn’t support Trump. For them, it feels like an existential crisis, a rerun of 2008 or even worse.”
For wealth advisors and portfolio managers, Rogoff’s comments underscore the importance of closely watching consumer sentiment and political polarization as market drivers—factors that are harder to quantify than GDP growth or interest rate forecasts, but no less impactful.
His remarks also raise questions about the sustainability of consumption trends, especially in a climate where volatility is increasingly driven by perceived political instability.
Rogoff criticized the erratic nature of Trump’s tariff strategy, characterizing it as deeply destabilizing for market participants. “It seems like he spins a wheel every morning—first to pick a country, then to decide the level of tariff he wants to impose,” Rogoff remarked. “Then he might change it the next day. You don’t know what’s coming, and that unpredictability is toxic to business and consumer confidence.”
This level of uncertainty, Rogoff added, has created an environment in which both domestic consumers and international trade partners feel like they’re bracing for the next blow. His metaphor comparing global trade partners to penguins avoiding polar bears in the Arctic conveyed a grim image of nations cautiously navigating a U.S. policy landscape where rules and priorities are in constant flux. “It’s not that they want to confront the U.S., but they’re deeply wary of getting blindsided,” he said.
From a macroeconomic perspective, Rogoff also offered a sobering take on the state of the U.S. dollar. “We probably hit the high point of dollar dominance about a decade ago,” he noted, referring to the greenback as “middle-aged” in terms of its global role.
While he did not predict an imminent collapse in the dollar’s influence, he suggested that the world is slowly moving toward a more multipolar currency system. This shift could have long-term implications for asset allocation, cross-border investment strategies, and even the structure of global reserves.
For RIAs and institutional investors, Rogoff’s analysis invites a broader reevaluation of portfolio risk amid political volatility and shifting global power dynamics. His framing of the moment as reminiscent of the 1970s—an era characterized by stagflation, currency realignment, and diminished trust in government institutions—suggests that the current cycle may call for strategies that prioritize resilience over simple market beta exposure.
“Trump actually reminds me a bit of Nixon,” Rogoff commented, drawing a historical parallel to another period marked by deep mistrust, policy surprise, and international realignment. He noted that in both eras, uncertainty was not just about the economy but about governance and institutions themselves.
For advisors, this may mean engaging clients in more nuanced conversations about policy risk and building defensive strategies into portfolios—particularly for clients with heightened sensitivity to market volatility or geopolitical disruption.
The underlying thread in Rogoff’s assessment is that this isn’t simply about tariffs or trade deficits. Rather, it’s about the erosion of confidence—both domestically and abroad—in the rules-based systems that have traditionally underpinned global economic cooperation and U.S. financial leadership.
For advisors, especially those serving high-net-worth individuals with global exposure, understanding how sentiment—whether consumer, investor, or governmental—feeds into capital markets will be crucial.
Advisors may also want to be proactive in identifying signs of behavioral shifts in consumer and investor habits. If certain segments of the population perceive a policy environment as hostile or unstable, that could affect not just spending and investment decisions but also housing demand, business formation, and credit markets.
These second-order effects could materially impact sectors ranging from consumer discretionary to real estate, and may also alter the risk/reward calculus for equities versus fixed income or cash alternatives.
More broadly, Rogoff’s warning invites financial professionals to think about recession preparedness in new terms. Traditional recession playbooks—monitoring yield curve inversion, corporate earnings trends, or central bank tightening—remain valuable.
But in this cycle, the soft data, such as consumer confidence surveys and media sentiment, may carry outsized influence. Political identity and psychological perception are becoming more deeply entwined with economic behavior than in past cycles, making the task of risk management even more complex.
Rogoff’s comments also present an opportunity for RIAs to differentiate themselves. While most market commentary is focused on the quantitative—earnings, inflation, jobs numbers—Rogoff reminds the advisory community that qualitative analysis remains indispensable.
Understanding how politics, identity, and perception shape the economic landscape can help advisors not only anticipate shifts in sentiment but also guide clients through them with a steady hand.
The key takeaway is not to overreact to Rogoff’s forecast, but to recognize that political dynamics and consumer psychology are exerting a growing influence on the macroeconomic outlook. Advisors who can translate this complexity into actionable investment decisions—and communicate the rationale effectively—will be better positioned to serve their clients in what increasingly appears to be an emotionally charged, sentiment-driven cycle.
Whether the U.S. ultimately tips into recession or not, the environment described by Rogoff—a volatile mix of policy unpredictability, consumer anxiety, and global hesitancy—requires a recalibration of traditional risk models. Portfolio construction may need to account for not only asset correlations and market cycles but also political shock factors and behavioral shifts.
For the wealth advisor community, Rogoff’s perspective is a compelling reminder that we are operating in an era where economic outcomes are increasingly shaped by forces beyond the spreadsheet. In such an environment, maintaining discipline, staying informed, and fostering transparent client communication are not just best practices—they’re essential.
