Another financial crisis may be brewing in the US, experts warn (Image: Getty)
It has been 17 years since the 2008 financial crisis, which spread globally after a housing bubble burst in the United States. Experts now warn another such panic may be looming across the Atlantic despite share prices in New York hitting record highs.
This week’s shutdown of the US government failed to spook Wall Street, where more records were set this week as tech stocks continued to soar. The S&P 500 added 0.1% on Thursday to its all-time high set the day before. The Dow Jones Industrial Average rose 79 points, or 0.2%, while the Nasdaq composite climbed 0.4%. Both hit records.
READ MORE: Russia economy meltdown as Kremlin hikes taxes to fund Putin’s war on Ukraine
READ MORE: Rachel Reeves to be hammered with new £20bn blow to the UK economy
GDP growth in the US came in at a strong 3.8% annual pace in the second quarter of 2025, reversing a 0.6% decline in the first three months of the year. Michael Linden, senior policy fellow at the Washington Centre for Equitable Growth, said the economy is creating fewer jobs, wage growth is slowing, and middle-class consumers feel pinched. He said: “The economy is very much on a knife-edge.”
Russ Mould, Investment Director at AJ Bell, told the Express no one seems to expect a US recession or any “undue turbulence”, judging by consensus profit estimates for quoted US companies, how the Dow Jones, Nasdaq and S&P 500 are performing and even GDP growth estimates.
He added: “Perhaps this is where the danger lies, especially as economists and official data providers only declared the last deep US downturn, that of 2007-09, a good year after it had begun. And there are some red flags out there.”
These include a seemingly soft housing market, lagging consumer confidence, “fairly stagnant” car sales and “worst of all”, an apparently weakening job market.
Mr Mould said “telling signs” of weakness include vacancies below the number of unemployed for the first time since before the pandemic, negative revisions to job growth estimates and payroll data showing lower job creation.
He added: “The only other times we have seen similar downgrades this century were 2008-2009 and 2020, when the Great Financial Crisis and COVID-19, respectively, were battering the US economy. This is not good company to keep.”
The S&P 500, Dow Jones and Nasdaq have seen record highs. (Image: Getty)
AJ Bell’s investment director cautioned that the “numbers are still messy” and the Trump administration’s changes to tariffs is possibly persuading firms to hold back on hiring and investment until they know where they stand.
Costas Milas, Professor of Finance at the University of Liverpool, said indices compiled by the European Central Bank and the Federal Reserve Bank of St Louis suggest there is little risk of emerging financial stress in the US.
However, he suggested financial markets overestimate the health of the country’s economy, pointing to a projection that US debt will reach 128.2% of GDP by 2030 compared with an advanced economy’s average of 113.3%.
Professor Milas told the Express: “This is too high for comfort. Donald Trump continues his attacks on the Fed and Fed Chair Jerome Powell – therefore undermining the Fed’s independence – and demands huge cuts in US interest rates.
“At some stage, stock markets will run a proper ‘reality check’ and possibly react badly to all these, in which case, the stock market bubble will burst.”
He said if that were to happen, then a possible US financial crisis would “quickly transmit” to Britain, with a two-year-long hit to GDP in the UK, where investors are already “on edge” about the country’s “shaky” fiscal position.
Our community members are treated to special offers, promotions, and adverts from us and our partners. You can check out at any time. Read our Privacy Policy
Ahead of Mr Trump’s second UK state visit, Chatham House cautioned against Britain aligning too closely with the US financially. The influential think tank identified the Trump administration’s cryptocurrency approach, climate threat denial, US Federal Reserve attacks and financial services deregulation agenda as risks to stability.
Mr Mould said the White House’s plan is to run the US economy hot as it tries to boost growth and reduce the debt/GDP ratio. He added: “All levers will be pulled to try to avoid a slowdown.”
He added: “A slowdown or unexpected recession would further stretch America’s strained federal finances, by driving down tax receipts and driving up welfare payments, so that outcome really cannot be afforded.
“The Fed – and the White House – are more likely to take their chance with the economy overheating and inflation rather than a recession and deflation.
“All of that said, the economy is not the stock market, and the stock market is not the economy. Equity valuations in the US are very high by historic standards, on any metric you care to use, so there is little margin for error.”
Taufiq Choudhry, Professor of Finance at the University of Southampton, told the Express if confidence in the US economy erodes futher then equity markets could see “sharp” corrections, tighter credit conditions and pressure on the dollar.
He said concern of a financial crisis in the US is growing, pointing to Fed projections showing US GDP growth slowing to just 1.6% in 2025 and unemployment rising to 4.5%. Inflation remains “elevated”, with an average 3.1% this year, above the Fed’s 2% target.
Professor Choudhry said a crisis could emerge through a sudden loss of liquidity or a breakdown in investor sentiment, especially if political instability continues amid the US government shutdown and Trump trade tariffs.
He added: “For the UK, the implications would be significant. The US remains a major trading partner and financial centre. A downturn there would likely impact UK exports, financial markets and investor confidence.
“While the Bank of England has stressed the resilience of the UK financial system, contagion effects cannot be ruled out.”