Goldman Sachs has raised the probability of a U.S. recession within the next 12 months to 35%, up from 20%, citing escalating trade tensions and inflationary pressures stemming from President Donald Trump's tariff policies.
The administration plans to implement "reciprocal" tariffs averaging 15% across all U.S. trading partners, a move anticipated to significantly impact global trade dynamics. These tariffs are expected to raise consumer prices, leading Goldman Sachs to adjust its year-end 2025 core Personal Consumption Expenditures (PCE) inflation forecast to 3.5%. Additionally, the firm has lowered its 2025 GDP growth projection to 1.0%.
In response to these economic challenges, Goldman Sachs forecasts three interest rate cuts by the Federal Reserve in 2025, aimed at mitigating the anticipated slowdown. These reductions are projected for July, September, and November.
The announcement has already reverberated through global markets. The S&P 500 has entered correction territory, declining 10.7% from its recent peak. International markets have also felt the impact, with the Australian stock market losing $38 billion in value amid fears of a global economic downturn.
As the U.S. prepares to implement these tariffs, investors and policymakers are closely monitoring the situation, assessing the potential for further economic instability and its implications for global trade.
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