Trump's 90-Day Tariff Delay Lowers Recession Risk, Goldman Sachs Cuts Probability to 45%

President Trump's announcement of a 90-day delay on the implementation of new tariffs on specific countries has provided some relief to economists, but it has not entirely alleviated market concerns about an impending U.S. economic recession. Chris Brigati, the chief investment officer at an investment firm in San Antonio, noted that while the risk of a recession had not been entirely eliminated, the probability had decreased since the announcement of the 90-day delay.

Goldman Sachs economists, who had previously included a recession in their baseline economic forecast, revised their stance following Trump's announcement. They now predict that the U.S. economy will grow at a sluggish pace, with a 0.5% year-over-year growth rate in the fourth quarter. The economists at Goldman Sachs still estimate a 45% probability of a recession, anticipating that the Federal Reserve will implement three consecutive 25 basis point "insurance" rate cuts in June, July, and September.

The 90-day delay on tariffs is set to expire on July 8, with Federal Reserve meetings scheduled for June 17-18 and July 29-30. Justin Wolfers, an economics professor at the University of Michigan, cautioned against declaring the "tariff end day" over. He pointed out that the U.S. would still maintain the highest tariff levels among industrialized nations, potentially 10-20 times higher than those of most trading partners and approximately 10 times the previous levels. These tariff rates are comparable to or exceed those set by the Smoot-Hawley Tariff Act during the Great Depression. The Smoot-Hawley Tariff Act raised tariffs on over 20,000 imported goods to historic highs, and some economists believe it catalyzed the decline in trade volume between the U.S. and Europe from 1929 to 1932, marking the beginning of the Great Depression.

Some economists speculate that the 90-day delay could eventually become permanent. Paul Ashworth, the chief North American economist at an economic research firm, suggested that Trump, influenced by market reactions, might continue to extend the delay, ultimately achieving an effect similar to his campaign promise of a 10% across-the-board tariff. Stephen Stanley, the chief U.S. economist at a major bank, expressed uncertainty about whether the delay would provide enough certainty for businesses to resume investment and hiring. He stated that if businesses could regain this certainty, the much-discussed recession might already be over.