Tariffs and global trade tensions push Goldman to bring forward Fed rate cut expectations; economists warn of potential recession if April 9 hikes go into effect.
April 7, 2025: Goldman Sachs Raises Odds of US Recession to 45%, Cuts Growth Forecast Over Tariff Shock
Washington D.C. | Bloomberg – In a stark warning, Goldman Sachs has raised its probability of a US recession within the next 12 months from 35% to 45%, following President Donald Trump’s sweeping tariff measures that have rattled global markets.
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The bank’s economists, led by Jan Hatzius, also slashed the 2025 Q4-to-Q4 US GDP growth forecast to 0.5% from 1%, citing worsening financial conditions, mounting global uncertainty, and looming foreign consumer boycotts.
“The sharp tightening in financial conditions, foreign consumer boycotts, and continued policy uncertainty are likely to depress capital spending more than we previously assumed,” the analysts wrote in their April 6 research note.
Recession Outlook Tied to April 9 Tariff Hikes
The warning comes ahead of the April 9 tariff deadline, where a raft of new duties is scheduled to take effect. Goldman assumes that the effective US tariff rate will rise by 15 percentage points—but warns that if most of the April 9 tariffs are implemented as planned, the increase could be closer to 20 percentage points.
“If that scenario plays out, we will revise our baseline forecast and expect a recession,” the report stated bluntly.
Fed Rate Cuts Expected Sooner
Goldman Sachs now expects the Federal Reserve to respond with three consecutive 25 basis point “insurance” rate cuts starting in June, earlier than its previous July forecast. That would bring the federal funds rate down to a range of 3.5%-3.75%.
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In the event of a full-blown recession, however, Goldman predicts the Fed may slash rates by up to 200 basis points over the next year.
The firm’s probability-weighted forecast now implies 130 basis points of rate cuts in 2025, up from 105 basis points earlier—largely aligning with market expectations as of last week’s close.
The bank’s outlook underscores the growing nervousness in financial circles as global markets remain volatile, with investors bracing for what could be a long-drawn trade war and its spillover effects on growth, inflation, and policymaking.
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