Blog Title: Goldman Sachs Raises Recession Risk to 45% Amid Tariff Turmoil

In a significant revision to its economic outlook, Goldman Sachs has increased the probability of a U.S. recession within the next 12 months to 45%, up from its earlier estimate of 35%. This adjustment comes on the heels of the Trump administration’s recent announcement of new tariffs set to take effect on April 9, a move that has triggered concerns over tightening financial conditions, rising policy uncertainty, and declining business confidence.

Goldman Sachs economists, led by Jan Hatzius, also revised their GDP growth forecast for the fourth quarter of 2025, reducing it from 1% to a mere 0.5%. The downgrade reflects anticipated disruptions in capital investment due to growing uncertainty in trade policy, particularly the impact of elevated tariffs. The economists highlighted the risks stemming from foreign consumer boycotts and continued volatility in global markets, which are expected to weigh heavily on corporate sentiment and decision-making.

The revised forecast assumes that the effective U.S. tariff rate will rise by 15 percentage points overall. However, this scenario relies on a substantial reduction in the scope of the tariffs scheduled for implementation on April 9. If those tariffs are fully enacted, Goldman Sachs warns that the effective tariff rate could spike by as much as 20 points, further exacerbating economic headwinds.

In such a case, the firm has stated that it would alter its baseline forecast to reflect a full-blown recession. This underscores the high level of economic sensitivity tied to trade policies and geopolitical developments, with the U.S. economy showing signs of vulnerability under the weight of protectionist measures.

Goldman’s updated outlook also includes a shift in expectations regarding the Federal Reserve’s monetary policy response. In the current non-recession scenario, the economists predict that the Fed will begin a series of three 25-basis point rate cuts starting in June—moved forward from an earlier expectation of July. This would lower the federal funds rate to a range of 3.5%–3.75% as a form of preemptive economic support.

However, should a recession unfold, Goldman Sachs expects the Fed to adopt a much more aggressive stance, cutting rates by approximately 200 basis points over the following year. Their new probability-weighted forecast implies 130 basis points in total rate cuts for 2025, up from 105 basis points, reflecting the increased likelihood of economic contraction.

The warning from Goldman Sachs adds weight to growing concerns among financial analysts and business leaders who fear that escalating trade tensions and policy unpredictability could derail the modest recovery seen in the U.S. post-pandemic economy. The current trajectory of U.S. economic policy, particularly in trade and tariffs, has the potential to isolate the country from key global partners while also inflating costs for domestic consumers and businesses.

This is not the first time concerns have been raised about the Trump administration’s aggressive tariff approach. Previous rounds of tariff increases under the earlier Trump presidency led to periods of economic slowdown and uncertainty in global markets, particularly affecting the manufacturing and agricultural sectors. The fresh round of tariffs, if enacted in full, could replicate or even worsen those effects.

Moreover, the timing of this economic uncertainty—coming ahead of a heated presidential election—adds another layer of complexity. The Federal Reserve’s actions, consumer sentiment, and corporate investment strategies are all likely to be influenced by the broader political climate, creating a feedback loop that could further destabilize the U.S. economy.

In the meantime, market watchers are closely monitoring the Fed’s signals and any developments in the White House’s trade negotiations. Investors and businesses alike are hoping for clarity and moderation in policy decisions that could help stave off recession risks and sustain the fragile recovery momentum.

As April 9 draws nearer, all eyes will be on whether the administration follows through with the announced tariffs or whether there’s a recalibration in response to growing domestic and international pressure. The answer could very well determine the trajectory of the U.S. economy for the remainder of 2025—and possibly beyond.