Goldman Sachs Estimates 35% Chance of US Recession in the Next Year, Largely Due to Trump Tariffs

Goldman Sachs issued a note Mar. 30 spelling out a comparatively gloomy portrait of the American economy over the course of the next 12 months, hiking the odds of a U.S. recession to 35% (from a previous 20% likelihood) while also upping projections regarding inflation (from 3% to 3.5%) and the unemployment rate, as CNBC reported.

The investment bank now predicts a tariff rate increase of 15%, a scenario it previously categorized as a “risk case” but which it has now adopted as the most likely outcome.

“We continue to believe the risk from April 2 tariffs is greater than many market participants have previously assumed,” Goldman Sachs stated via its note. It also revised unemployment numbers upward to 3.5%, a positive adjustment of 0.3%.

Consumer Sentiment Worrisome, Potential for Stagflation Economy Also on the Table Due to Tariffs and Trade Concerns

Goldman Sachs gestured toward a significant drop in consumer sentiment stateside — sentiment detailed in comprehensive detail by a recent University of Michigan survey on the subject — as being worrisome, despite it not being a particularly reliable macroeconomic indicator in all cases.

“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,” the investment bank indicated, per CNN.

The projection of weak economic growth by the investment bank, pegged at just 0.2% annualized growth rate for the first quarter and a modest 1% for the entire year, set the stage for a potential stagflation economy, according to CNBC.

Stagflation is a term used to refer to an economic circumstance in which a nation faces high inflationary pressure while concurrently experiencing stagnant growth. CNBC conjured up the memory of the Paul Volcker-led Federal Reserve of the late 1970s-early 1980s. At that time, the Fed elected to significantly increase interest rates to fight inflation, a move which pushed the United States into a period of recession.

Fed Could Cut Interest Rates Further to Spur Growth, At the Risk of Heating Up Inflation

Goldman Sachs economists were bullish over the prospect of the Federal Reserve slashing the benchmark rate from its current range of between 4.25% to 4.5%, layout out the case for an estimate which would see the Fed cut interest rates three times in 2025 alone.

“We have pulled the lone 2026 cut in our Fed forecast forward into 2025 and now expect three consecutive cuts this year in July, September, and November, which would leave our terminal rate forecast unchanged at 3.5%-3.75%,” Goldman Sachs stated.

This news follows a Mar. 19 Federal Open Market Committee meeting which saw the Fed keep rates steady at the aforementioned range.