Goldman Sachs Raises US Recession Odds to 35% Due to Trump Tariffs

Goldman Sachs has revised its forecast, increasing the likelihood of a recession in the United States within the next year to 35%. This significant increase from the previous forecast of 20% is attributed to the potential economic impact of President Trump's tariff policies. The investment bank anticipates that the proposed tariffs could lead to an inflation spike, with core PCE inflation expected to reach 3.5% this year, surpassing the U.S. Federal Reserve’s 2% target. This projection is based on the assumption that the tariffs will result in an average 15% reciprocal tariff, which could disrupt supply chains, increase production costs, and ultimately lead to higher prices for consumers.

The economic fallout from these tariff policies is expected to be substantial, with Goldman Sachs predicting weak economic growth and a rise in unemployment from 4.1% to 4.5%. The bank's economists warn that the proposed tariffs could cause significant economic pain, potentially leading to a recession. In response to the potential economic turmoil, Goldman Sachs also expects the Federal Reserve to implement more rate cuts. The bank's analysts believe that the central bank will need to take measures to mitigate the economic impact of the tariffs, potentially lowering interest rates to stimulate economic activity and prevent a recession. This expectation underscores the severity of the situation and the potential need for monetary policy intervention to stabilize the economy.

The revised forecast by Goldman Sachs highlights the growing uncertainty surrounding the U.S. economy, as the implementation of Trump's tariff policies looms. The bank's economists have warned that the proposed tariffs could lead to a spike in inflation, which would further exacerbate the economic challenges facing the country. The increased likelihood of a recession, coupled with the potential for higher inflation, presents a complex economic landscape that policymakers and investors will need to navigate carefully. The situation underscores the delicate balance between trade policy and economic stability. The proposed tariffs, while intended to protect domestic industries, could have unintended consequences that ripple through the broader economy. The increased likelihood of a recession, as forecasted by Goldman Sachs, serves as a stark reminder of the potential risks associated with protectionist trade policies. As the U.S. economy faces these challenges, it will be crucial for policymakers to take proactive measures to mitigate the economic fallout and ensure long-term stability.