Goldman Sachs Lifts U.S. Recession Probability to 35%

By James Glynn

  SYDNEY--The prospect of a radical escalation in the global trade war in coming days has nearly doubled the probability of a recession in the U.S. economy in the next twelve months to around 35%, according to Goldman Sachs. 

  Ahead of the Trump administration's so-called "liberation day" on Wednesday, which will clarify the extent of U.S. tariff actions and spur likely reprisals from other countries, Goldman Sachs also lifted its forecast for U.S. inflation this year. Goldman said it now expects three interest rate cuts by the Federal Reserve in 2025. 

  "The upgrade from our previous 20% estimate (of a U.S. recession) reflects our lower growth baseline, 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 their policies," Goldman Sachs said in a research note. 

  "While sentiment has been a poor predictor of 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," it added. 

  Goldman Sachs said it expects President Trump to announce reciprocal tariffs that average 15% across all U.S. trading partners this week, although product and country exclusions might ultimately whittle the average down. 

  The bank also lifted its year-end 2025 core PCE inflation forecast to 3.5% year-on-year while also lowering its 2025 GDP growth forecast to 1.0%. 

  The expected slowdown in the U.S. economy also prompted Goldman Sachs to raise its year-end 2025 unemployment rate forecast to 4.5%. 

  The bank pulled its lone 2026 cut in its Fed forecast forward into 2025 and now expects three consecutive cuts this year--in July, September, and November. This would leave its terminal rate forecast for the Fed Funds rate unchanged at 3.50-3.75%. 

  "While the Fed leadership has downplayed the rise in inflation expectations so far, we think it does raise the bar for rate cuts and in particular puts greater emphasis on a potential increase in the unemployment rate as a justification for cuts," Goldman said. 

  -Write to James Glynn at [email protected] 

  Corrections & Amplifications

  This article was corrected on March 31, 2025 to clarify that the Trump administration's so-called "liberation day" is Wednesday, April 2. An earlier article incorrectly said "liberation day" is on Tuesday. 

  (END) Dow Jones Newswires

  March 30, 2025 19:02 ET (23:02 GMT)
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