CNN
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The US economy faces a growing risk of a recession as surging tariffs threaten to stunt growth, reignite inflation and lift unemployment, according to Goldman Sachs.
The Wall Street bank warned clients Sunday night that it now sees a 35% chance of a recession in the next 12 months, up from 20% previously.
Goldman Sachs also increased its inflation estimate, slashed its 2025 GDP forecast to just 1% and bumped up its year-end unemployment rate outlook by 0.3 percentage points to 4.5%.
While Goldman Sachs still expects the US economy to avoid a downturn, other forecasters think it’s more of a 50/50 call. This is Goldman’s highest recession probability since the regional banking crisis two years ago. The catalyst now is the shock from President Donald Trump’s trade war, which is set to intensify this week.
Goldman Sachs blamed the “sharp recent deterioration in household and business confidence, and statements from White House officials indicating greater willingness to tolerate near-term economic weakness in pursuit of these policies,” the bank’s economists wrote in the report.
Consumer confidence has plunged in recent months. The University of Michigan’s consumer sentiment survey, released Friday, showed the highest percentage of Americans expecting unemployment to rise since the Great Recession as inflation expectations hit 32-year highs.
“While sentiment has been a poor predictor over activity over the last few years, we are less dismissive of the recent decline because economic fundamentals are not as strong as in prior years,” Goldman Sachs said.
During the campaign, Trump promised to aggressively use tariffs. Yet investors, CEOs and economists have been caught off guard by just how aggressively he’s kept that promise.
Trump on Air Force One Sunday dismissed last week’s reports from Bloomberg and the Wall Street Journal that his administration would match tariffs dollar-for-dollar on just a handful of countries to start – perhaps the “Dirty 15” countries with the largest trade imbalances with the United States as Treasury Secretary Scott Bessent had suggested a week ago.
“You’d start with all countries, so let’s see what happens,” Trump said Sunday. “I haven’t heard a rumor about 15 countries, 10 or 15.”
Underscoring that point, Goldman Sachs on Sunday increased its tariff assumptions for the second time in less than a month. The bank now expects the average US tariff rate to rise 15 percentage points in 2025, up from 10 points earlier this month and a level that was previously its “risk case.”
The change was driven almost entirely by the likelihood of more aggressive reciprocal tariffs that average 15% across all US trading partners. Goldman Sachs expects that the reciprocal tariff impact will get lowered to 9 percentage points after accounting for exclusions for certain countries and products.
“Higher tariffs are likely to boost consumer crisis,” Goldman Sachs economists wrote, noting that higher prices will eat into inflation-adjusted income.
Trump had said last week that his reciprocal tariffs, set to be announced Wednesday, would be “lenient.” But Peter Navarro, White House senior counselor for trade and manufacturing, told Fox News Sunday that he expected Trump’s tariffs to raise as much as $600 billion a year – an historic tax increase that could raise costs for millions of Americans.
Goldman Sachs now sees core inflation at 3.5% at the end of the year, up from its prior estimate of 3%. Core inflation accelerated to 2.8% in February, according to the Fed’s go-to inflation measure.
Goldman Sachs now expects the Fed to aid the economy by cutting rates three times this year, up from two cuts in its previous call.