Jamie Spencer
Tariffs, inflation, and confidence shocks drive economic forecast shift
The US economy faces heightened recession risks as escalating tariffs under President Donald Trump’s administration threaten to stunt growth, rekindle inflation, and lift unemployment, according to a stark warning from Goldman Sachs.
The Wall Street giant told clients Sunday night that the likelihood of a US recession within the next year has climbed to 35%, up from 20%. This marks Goldman’s most pessimistic call since the 2023 regional banking crisis. The key concern now is the looming economic blow from Trump’s sweeping trade war measures set to ramp up this week.
Goldman Sachs economists also revised their inflation and GDP forecasts. They now expect:
- Core inflation to hit 3.5% by year-end (up from 3%)
- GDP growth to drop to just 1% in 2025
- Unemployment to rise to 4.5% (0.3 percentage points higher)
Confidence collapses across households and businesses
The bank cited deteriorating confidence among both consumers and companies. Its report blamed the administration’s apparent readiness to accept short-term economic pain in pursuit of long-term trade restructuring. University of Michigan data released Friday showed the highest share of Americans anticipating job losses since the Great Recession, alongside surging inflation expectations not seen in 32 years.
“While sentiment has been a poor predictor over the past few years, we are less dismissive of this recent downturn because the fundamentals are weaker,” the bank noted.
Trump dismisses moderation, Goldman adjusts tariff assumptions
Despite prior suggestions that reciprocal tariffs might be initially limited to 10 or 15 countries, Trump told reporters Sunday aboard Air Force One that “you’d start with all countries.” His remarks came in direct contradiction to earlier guidance from Treasury Secretary Scott Bessent.
In response, Goldman Sachs increased its average tariff hike assumptions to 15 percentage points — a jump from 10 points forecasted earlier this month. After adjusting for likely product and country exclusions, the net increase is expected to be around 9 points.
Fed expected to respond with deeper cuts
To counteract the economic shock, Goldman now sees the Federal Reserve cutting interest rates three times in 2025, instead of the two previously forecasted.
Meanwhile, White House trade adviser Peter Navarro forecasted the tariffs could raise up to $600 billion a year — effectively an enormous tax hike on US consumers. Goldman warned that rising prices will squeeze real incomes and intensify inflation pressures already on the rise.
