Goldman Sachs Raises US Recession Probability to 35% Amid Tariff Concerns

Goldman Sachs has increased its forecast for the probability of a US recession within the next 12 months to 35%, up from the previous estimate of 20%. This revision comes in response to President Donald Trump's planned tariff increases, which are expected to significantly impact the US economy. The bank's economists have expressed concerns that these trade policies could lead to slower economic growth, higher inflation, and increased unemployment.

The bank's note, titled “US Economics Analyst: A Further Increase in Our Tariff Assumptions,” highlights the anticipated rise in the average US tariff rate by 15 percentage points in 2025. This increase is primarily due to more aggressive “reciprocal” tariffs that Trump is expected to announce. These tariffs are set to be revealed on April 2 and are expected to average 15% across all US trading partners. After accounting for likely exclusions for certain countries and products, Goldman estimates the effective increase will be around 9 percentage points.

As a result of these tariff changes, Goldman Sachs has revised its 2025 US GDP growth forecast to just 1%, a 0.5 percentage point reduction from their previous prediction. Additionally, the bank has raised its year-end core PCE inflation forecast to 3.5%, which is 0.5 percentage points higher than earlier estimates and well above the Federal Reserve’s 2% target. Unemployment projections have also been increased to 4.5%, 0.3 percentage points higher than Goldman’s previous forecast.

Three key factors are driving the rising recession probability, according to Goldman. These include a lower growth baseline, worsening household and business confidence, and statements from White House officials indicating a greater willingness to tolerate near-term economic weakness. Consumer confidence has plummeted in recent months, with the highest percentage of Americans expecting unemployment to rise since the Great Recession.

In response to these economic challenges, Goldman now expects the Federal Reserve to cut interest rates three times this year, up from their previous prediction of two cuts. The economic outlook presents what some analysts call a “stagflation” risk, combining low growth and high inflation, similar to conditions seen in the late 1970s and early 1980s.

The crypto market has also been affected by these macroeconomic concerns. Bitcoin and other digital assets edged lower following Goldman’s warning. While cryptocurrencies were once viewed as uncorrelated to traditional economic factors, Bitcoin has become increasingly responsive to broader macro conditions, particularly liquidity, risk sentiment, and real yields. Some experts see a potential silver lining for Bitcoin during economic downturns, suggesting that recessions can actually benefit Bitcoin in the long term due to increased fiscal spending, debt accumulation, and monetary stimulus.