Vanguard has joined the chorus of analysts and economists ringing alarm bells on recession following U.S. President Donald Trump's imposition of the steepest American trade barriers in over a century. 

"We are dancing with recession," the exchange-traded fund provider said.

Vanguard noted that the effective U.S. tariff rate may exceed 25%, far higher than initial expectations for the year. Historically, tariffs at such levels have been rare, as global markets were less interconnected over a century ago, and Vanguard cautions that sustained tariffs above 20% could have serious economic ramifications. 

One of the larger concerns the ETF issuer outlined was the fact that it was not clear how long tariffs may remain at their announced levels. 

In its updated forecast, Vanguard now predicts U.S. GDP growth in 2025 will fall below 1%, nearly a full percentage point lower than previous estimates. This slowdown threatens to push the economy into "stall speed," increasing the likelihood of a recession. 

Additionally, Vanguard expects inflation to remain persistent, with core inflation projected to reach around 4% by year-end, and unemployment to rise above 5%—the highest levels in a decade, excluding the COVID-19 crisis. 

The firm also warns that the combination of sluggish growth and rising prices could lead to stagflation, creating a tough environment for both stocks and bonds. 

Market Tracking ETFs: (NYSEARCA:DIA), (NYSEARCA:DDM), (NYSEARCA:DOG), (NYSEARCA:DXD), (NYSEARCA:SDOW), (NYSEARCA:SPY), (NYSEARCA:VOO), (NYSEARCA:IVV), (NYSEARCA:RSP), (NYSEARCA:SSO), (NYSEARCA:UPRO), (NYSEARCA:SH), SDS), (NYSEARCA:SPXU), (NASDAQ:QQQ), (NASDAQ:QQQM), (NYSEARCA:QLD), (NASDAQ:TQQQ), (NYSEARCA:QID), and (NASDAQ:SQQQ). 

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