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Former Treasury Secretary Lawrence Summers warned that the U.S. is now likely headed toward a recession, with potentially 2 million Americans put out of work, thanks to the tariff increases now in train.

“It’s more likely than not that we’re going to have a recession — and in the context of a recession, we’ll see an extra 2 million people be unemployed,” Summers said on Bloomberg Television’s Wall Street Week with David Westin. “We’ll see losses in household income” of $5,000 per family or more, he said.

There will be “very important choices in the weeks ahead” with regard to tariff plans by President Donald Trump that exceed even those of 1930 that “made the depression great,” said Summers, a Harvard University professor and paid contributor to Bloomberg TV. It would be wise to be “backing off the policies that have been announced,” he said.

Financial markets are “speaking with incredible clarity” about the impact of the tariffs, Summers said — highlighting that stocks have been surging on any headlines suggesting relief, and plunging on news suggesting the levies will go ahead.

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“We’re very likely, in the context of a recession, to see markets reach levels significantly below their current level,” Summers said. “I’d be surprised if the bottom is yet in with respect to this phase and markets,” he also said.

A U.S. economic downturn would have various other negative effects, he noted, including a wider budget deficit. “There will be financial distress that will affect higher-risk companies and also higher-risk countries in the global economy.”

Market ‘Alarm’

While it’s “hard to know” about the risk of an economic slump morphing into a financial crisis, the former Treasury chief highlighted the tightening in regulations since the 2007-09 meltdown, which was directed at ensuring financial firms are well capitalized and that the system’s so-called plumbing was functional. Deputy Treasury Secretary Michael Faulkender earlier Tuesday said that “liquidity continues to flow” and there were no “impediments” despite the market volatility.

“I’m less worried about the internal integrity of markets than I am by the external message that markets are sending — which I think is one of alarm,” Summers said. In the absence of some corporate executives and academic leaders speaking up about their concerns with policy actions, markets are “such an important signal of where things are going,” he said.

For the first time, the U.S. is facing a recession caused by its own policy actions, he indicated. “There is nothing in the outside world that is causing this challenge. It is induced by the words and deeds of President Trump and his administration,” he said. “I don’t know that there really is a historical precedent for what’s being done now.”

“There would be a substantial resumption of normality” in the economy if the government backs off on its “policy errors,” he said.

‘B’ Student

“There’s nothing complicated about this,” Summers also said.  It is “introductory economics” that the imposition of a huge tax hike on the middle class, clouded with uncertainty, damages businesses and forces the economy downwards, Summers said. “Any ‘B’ student will know that the answer to that is that it’s a supply shock that raises prices and raises unemployment.”

It will be “enormously costly for the United States and for the world economy” if Washington jacks up tariff rates back to pre-World War II levels, Summers said. “The losses to markets, if all of this were sure to be implemented, would be many trillion dollars. And the stock market only measures a very small fraction of the losses to the economy from policies of this kind.”

This story was originally featured on Fortune.com

• It’s been rough for most Americans’ 401(k)s since Trump unveiled his chart of reciprocal tariffs in the Rose Garden last week. The initial decline in the benchmark 10-year yield might have offered hope to homebuyers and sellers yearning for lower mortgage rates, but rates have remained elevated. The average fixed rate on a 30-year mortgage is still above 6.6%.

President Donald Trump’s sweeping reciprocal tariffs sparked chaos in the stock market, but bonds have also been on a wild ride. Amid one of Wall Street’s worst equity sell-offs in recent history, investors piled into safe-haven assets like Treasuries last week, but the apparent reversal of that trade means the ultimate impact on mortgages and other common borrowing costs for Americans remains unclear.

Early Monday, the yield on the benchmark 10-year Treasury note fell below 4% for the first time since October, down from about 4.8% in early January. That sharply reversed during a volatile trading session, however, as a rush out of bonds caused yields across all maturities to increase by at least 20 basis points, per Bloomberg. As of Tuesday afternoon, the 10-year yield approached the 4.30% mark as stocks pared back early gains to close in the red.

There’s been plenty of competing theories thrown out by market watchers for this dramatic retracement in yields as stocks and bonds curiously decline simultaneously.

“Everyone is trying to assign a narrative to why there was a big rise in Treasury yields yesterday,” Bill Merz, head of capital markets research at the U.S. Bank Asset Management Group, said Tuesday, “and the answer is people don’t know.”

There are a few straightforward explanations likely at play, though. Clearly, investors rushed to safety last week by selling stocks and buying Treasuries. It’s only natural, Merz said, for traders to partially unwind those positions.

“Thus, we’re seeing the bounce in Treasury yields,” he said.

Mortgage rates remain high as yields whipsaw

Yields, which represent an investor’s annual return, rise as bond prices fall—and vice versa. The former tends to happen if investors believe the Federal Reserve will be forced to hike rates, which makes the lower payments on existing bonds less attractive relative to new debt.

Therefore, it’s not surprising that yields have whipsawed as the market struggles to price what the Fed will do next. Through late February and early March, Merz noted, traders were expecting two-to-three quarter-point rate cuts. The turmoil after Wednesday’s tariff unveiling caused investors to suddenly price in four-to-five rate reductions, pushing yields downward, but some are less optimistic.

In a speech Friday, Fed Chair Jerome Powell indicated the central bank will continue its wait-and-see approach as widespread tariffs raise the prospect of dreaded stagflation, or rising inflation coupled with slowing growth. Investors had hoped for a sign the Fed stood ready to provide relief if the downturn persists, Merz said.  

“The market didn’t get that,” he said.

It’s been rough for most Americans’ 401(k)s since Trump presented his reciprocal tariffs. The initial decline in yields could offer hope to homebuyers and sellers yearning for lower mortgage rates, which are based on the 10-year Treasury.

In fact, a video reposted by Trump on his social media platform, Truth Social, suggested the president wanted to push investors to buy Treasuries, pushing yields lower and pressuring the Fed to cut its policy rate, which banks use to borrow from each other overnight.

The White House did not immediately respond to Fortune’s request for comment about the bond market’s movement this week.  

Even if the president were to deliberately tank the market to lower borrowing costs, the strategy could turn out to be ineffective. The average fixed rate on a 30-year mortgage still sits above 6.6% and has remained essentially flat in recent weeks, according to Freddie Mac. 

The spread between that rate and the 10-year yield is currently quite wide, Merz said. It can increase during periods of market stress, he added, one reason being that investors might sour on mortgage bonds relative to safer treasuries.

“That’s not helpful for consumers and borrowers,” Merz said. 

This story was originally featured on Fortune.com