Goldman Sachs has sharply raised its recession forecast for the United States, citing rising trade tensions and a shift in Federal Reserve expectations. With Donald Trump preparing to unveil sweeping new tariffs in early April, the investment bank sees slower growth, higher inflation, and waning confidence ahead. Markets, policymakers, and households alike are now bracing for the potential fallout.
Goldman Sachs Raises Recession Risk as Tariffs Take Centre Stage
Goldman Sachs has issued its most downbeat U.S. forecast in recent memory, raising the odds of a recession to 35%, a sharp increase from the previous 20%. What’s driving the gloom? A looming escalation in Donald Trump’s tariff campaign, with fresh levies expected to land in early April. Goldman doesn’t mince words: the potential fallout could be profound.
Across a series of client briefings, the investment bank outlined a worsening economic outlook: slower growth, higher inflation, and softer consumer spending. At the heart of it all is Trump’s increasingly aggressive trade posture. A proposed 25% tariff on imported vehicles, paired with sweeping reciprocal duties, risks functioning as a backdoor tax. The result, Goldman warns, is likely to be a drag on real disposable income and a chill on demand at a time when the economy can ill afford it.
Tariff Forecasts Force a Rethink of U.S. Growth Prospects
Goldman Sachs now expects average U.S. tariffs to rise by 15 percentage points in 2025, a shift it views as historically significant. While carve-outs for select products or countries may soften the blow around the edges, the overall impact remains substantial.
“Almost the entire (tariff rate) revision reflects a more aggressive assumption for ‘reciprocal’ tariffs,” the bank noted.
Combined with existing fiscal and immigration pressures, the tariff surge is expected to strip 1.2 percentage points from GDP growth over the next year. Goldman has cut its 2025 growth forecast to just 1%. Inflation, too, is now expected to rise more sharply, with core PCE projected at 3.5% by year-end, up from 3.0%. The unemployment rate is forecast to tick up to 4.5%, underscoring the mounting pressure across the economic landscape.
Federal Reserve Poised to Cut as Growth Risks Mount
Despite the inflation picture heating up, Goldman Sachs expects the Federal Reserve to respond not with rate hikes but with cuts. Three of them, in fact. The focus, they argue, is shifting from price stability to damage control.
“We continue to believe the risk from April 2 tariffs is greater than many market participants have previously assumed,” wrote Jan Hatzius and his team.
Goldman now forecasts rate reductions in July, September and November, stepping back from its earlier projection of just two cuts, originally spaced across June and December. The Fed’s terminal rate target remains unchanged at 3.50% to 3.75%.
This is not stimulus in the traditional sense. Goldman sees the expected easing as a form of pre-emptive cushioning: not to ignite growth, but to steady the ship amid growing policy uncertainty and tightening financial conditions.
Confidence Slips as Sentiment Weakens Across the Board
Goldman’s recession warning doesn’t rest on tariffs alone. A broader deterioration in sentiment is flashing red. Both consumers and businesses have turned markedly more cautious in recent weeks. Goldman sees this as an early signal of deeper economic strain.
“The increase in our recession probability reflects our lower growth baseline, the sharp deterioration in household and business confidence in the outlook over the last month, and statements from White House officials indicating greater willingness to tolerate near-term economic weakness in pursuit of their policies,” one note explained.
Fresh data from the University of Michigan backs the concern. The latest consumer sentiment survey shows the highest percentage of Americans expecting unemployment to rise since the depths of the Great Recession. While Goldman acknowledges that sentiment data hasn’t always been a reliable guide, this time the warning is reinforced by weakening fundamentals. It’s a combination the bank suggests is too serious to overlook.
Wall Street Wobbles as Goldman’s Gloom Sinks In
Equity markets, never fond of uncertainty, are beginning to reflect the growing economic threat. Goldman Sachs has now cut its S&P 500 year-end target for the second time this month, lowering it to 5,700 from 6,200. Among the major Wall Street banks, it now holds the most bearish outlook. The three-month forecast is even more cautious, with a target of 5,300 that suggests further downside in the near term.
“The downside risks to the economy from tariffs have increased the likelihood of a package of 2019-style ‘insurance’ cuts,” the bank added.
Despite the gloom, Goldman’s strategy team, led by David Kostin, still sees a glimmer of recovery. Their latest projection calls for a modest 6% rebound in the S&P. It is more of a limp forward than a rally, but still a reminder that sentiment has not completely collapsed.
