Goldman Sachs Raises U.S. Recession Probability to 45%

Goldman Sachs has increased its forecast for the probability of a U.S. economic recession within the next 12 months to 45%, up from 35% just a week ago. This marks the second adjustment in as many months, following an earlier increase from 20% in March. The latest revision comes amid a rapidly tightening financial environment and heightened policy uncertainty, which analysts at Goldman Sachs believe could significantly dampen capital expenditures.

The investment bank has also downgraded its GDP growth forecast for the fourth quarter of 2025 to 0.5%, down from the previous estimate of 1%. This downward revision reflects the bank's assessment of the current economic landscape, which includes a sudden tightening of financial conditions, increased resistance from foreign consumers, and growing policy unpredictability. These factors collectively pose a substantial risk to the U.S. economy, potentially leading to a recession.

In response to these economic headwinds, Goldman Sachs has adjusted its expectations for the Federal Reserve's monetary policy. The bank now anticipates that the Fed will begin a series of rate cuts starting in June, earlier than previously expected. Under the assumption that the U.S. economy avoids a recession, the Fed is projected to implement three consecutive 25 basis point rate cuts, bringing the federal funds rate to a range of 3.5% to 3.75%. However, if a recession does materialize, Goldman Sachs expects the Fed to adopt a more aggressive stance, potentially reducing rates by approximately 200 basis points in 2025. This revised outlook aligns with current market expectations, which also anticipate a more dovish Fed policy in the face of economic uncertainty.