Goldman Sachs Raises US Recession Odds to 45% Amid Tariff Impact

Goldman Sachs has significantly increased the odds of a recession in the United States to 45% within the next 12 months, primarily due to the impact of tariffs imposed by the Trump administration. This revision in forecast underscores the growing concerns over trade tensions and their potential to slow economic growth, increase prices, and reduce investment. The analysts at Goldman Sachs have also cut their projections for GDP growth, further emphasizing the economic risks posed by the tariffs. This shift in outlook has led to a broader discussion about the potential impact on various markets, including the cryptocurrency sector.

The heightened recession risk could have significant implications for Bitcoin and other digital assets. Historically, Bitcoin has shown resilience during market chaos, but the current economic environment presents unique challenges. The tariffs, which have been raised to nearly 20% from an expected 8.6%, have already caused market volatility, with equity markets experiencing significant declines. This volatility has not yet translated into a similar spike in crypto volatility, but analysts warn that this could change as the economic impact of the tariffs becomes clearer.

The Federal Reserve's response to the tariffs will also play a crucial role in shaping the economic landscape. Fed governors have indicated a cautious approach to lowering interest rates, preferring to observe the impact of tariffs on inflation, jobs, and the broader economy. Traders, however, have projected more interest rate cuts into 2025, suggesting that the markets anticipate a deeper economic impact from the tariffs. This expectation of monetary easing could potentially benefit Bitcoin, as past recessions have shown that digital assets can thrive in an environment of increased liquidity.

Despite the current market turmoil, Bitcoin has held firm, outperforming during the S&P 500 crash. This performance has led some analysts to speculate that Bitcoin could serve as a safe haven during economic uncertainty. However, others caution that the current economic environment is unprecedented, and the behavior of Bitcoin in a dual bear market (both crypto and traditional markets) remains uncertain. The potential for a recession could present opportunities for short positions in Bitcoin, as the laggard theory suggests that crypto may underperform during economic downturns.

According to the Goldman Sachs forecast, the Federal Reserve will lower interest rates by 25 basis points in each meeting three times. This aligns with similar sentiments on Wall Street, which also calls for lower rates. Overall, most firms gauged 116 basis point cuts, highlighting a reduction in at least four of five Fed meetings. This projection is a major positive for the crypto market, as fund flows to risky assets are expected. On the other hand, rate hikes see investors move funds out of these assets, with the Federal Reserve seeking to lower inflation.

Several interest rate cuts will fuel a market recovery coupled with signs of growing institutional demand. Recent events like the approval of spot crypto ETFs have heightened traditional finance participation. A move to lower rates now will see Wall Street gravitate towards the market. This scenario occurred in 2024 following global policy rate cuts after central banks posted cooling inflation. It should be noted that the heated macro continues its correlation with crypto prices. Bitcoin bulls currently set their sights on an institutional-driven rally to $90k.