The U.S. economy is showing troubling signs. Job creation has stalled, unemployment is rising despite restrictions on migration, and tariffs are driving up the cost of imports. Meanwhile, former President Donald Trump is at odds with Federal Reserve Chair Jerome Powell, even calling for his removal.
Yet Wall Street seems unfazed. Stock prices are hitting record highs almost daily, even though inflation remains above target and economic growth is slowing. Powell himself admits stocks are “fairly highly valued”—an understatement, given that by historical standards, they are extremely overvalued. Trouble could be looming.
Complacency in the Markets
Recessions and financial crashes are rare, but they’re predicted far more often than they occur. Aside from the unique 2020 pandemic downturn, it has been 17 years since a prolonged fall in share prices. Many younger traders—those in their 20s and 30s—have never lived through a true financial panic.
This lack of experience breeds complacency. The longer the gap between crises, the stronger the belief that the good times will last forever. History tells us otherwise: every boom ends in a painful bust. Yet the old phrase, “this time it’s different,” is being repeated once again.
The Optimism Driving Wall Street
The record-breaking rise in share prices is largely fueled by expectations that artificial intelligence will boost economic growth. While AI could indeed reshape industries, the effects will take years to materialize. Similar optimism surrounded the tech boom of the late 1990s, which ended in a painful crash.
In the UK, conditions look equally fragile. Growth is stagnant, inflation is running nearly double the Bank of England’s target, and ongoing speculation about tax hikes is eroding both consumer and business confidence.
Lessons From Past Crises
No two crashes are alike. The 2008 financial crisis was triggered by the housing bubble and risky financial instruments. Today’s risks look more like the inflation-driven recessions of the 1970s and early 1980s, when downturns were intentionally engineered to combat rising prices.
This is why the Trump–Powell power struggle matters. The U.S. economy may appear steady on the surface, but its performance is mediocre at best. The illusion of strength comes from the fact that wealthier households—those in the top 10%—are driving nearly half of all consumer spending, the highest share since the late 1980s.
The Wealth Divide and Its Risks
The reliance on the rich to sustain economic growth is dangerous. Stock ownership is at record levels, with 30% of American wealth tied to shares. Since shares are concentrated among higher earners, the economy is overly dependent on the continued boom of Wall Street and the spending habits of the wealthy.
Meanwhile, working- and middle-class Americans have seen their real incomes stagnate since the pandemic. As analyst Mark Zandi notes:
“As long as the wealthy keep spending, the economy should avoid recession. But if they turn more cautious, for whatever reason, the economy has a big problem.”
What Could Trigger the Next Recession?
A sharp fall in share prices could change everything. If the wealthy lose confidence and cut back on spending, growth would slow dramatically. Add in the strain of tariffs, and the threat of a 2026 recession becomes real.
In that scenario, Powell and the Federal Reserve would face pressure to cut interest rates to prop up markets. Wall Street is betting that they will do just that, which is the only thing keeping share prices from sliding today.
Final Thoughts
History shows that markets always cycle through booms and busts. Right now, optimism is running high, but cracks are showing beneath the surface. Whether triggered by tariffs, inflated stock values, or a loss of confidence among the wealthy, the risk of a downturn is growing.
For everyday Americans, the warning is clear: don’t rely on Wall Street’s party to protect Main Street’s future.