Goldman Sachs has raised its forecast for a US recession to 35% over the next 12 months, warning that President Donald Trump’s sweeping new tariff policy could tip the economy into a period of low growth and rising inflation.
In a note to clients released late Sunday, the investment bank said the escalation of trade tensions — with reciprocal tariffs expected to be announced on Wednesday — has led to a “sharp deterioration” in business and consumer confidence. The bank previously estimated the chance of a recession at just 20%.
“We continue to believe the risk from April 2 tariffs is greater than many market participants have previously assumed,” Goldman economists wrote.
The bank now forecasts:
- Core inflation at 3.5% by year-end (up from 3%)
- GDP growth at just 1% in 2025 (down from 1.5%)
- Unemployment rising to 4.5% (up 0.3 points)
- A total of three Federal Reserve rate cuts this year (previously two)
Goldman’s new baseline assumes a 15-percentage point increase in average US tariffs, reduced to 9 points after exemptions. That is a significant revision from the 10-point increase previously seen as the “risk case.”
While Trump had suggested last week that his measures would be “lenient,” he appeared to walk that back over the weekend. Speaking aboard Air Force One, Trump dismissed speculation that only a limited set of countries would be targeted: “You’d start with all countries, so let’s see what happens,” he said.
White House adviser Peter Navarro told Fox News on Sunday the tariffs could raise up to $600bn a year, implying widespread cost increases for imported goods and a potential blow to household spending power.
Goldman noted that inflation-adjusted incomes are likely to fall as prices rise across the board. Consumer sentiment has already weakened, with the University of Michigan’s survey showing the highest share of Americans expecting rising unemployment since the global financial crisis.
Though sentiment has proven a poor predictor of actual economic activity in recent years, Goldman said the decline now aligns with weaker fundamentals and greater policy-driven uncertainty.
The outlook points to a rising risk of stagflation, where inflation remains elevated even as economic growth slows. The last time the US faced stagflation was in the late 1970s and early 1980s, when the Federal Reserve raised interest rates sharply to bring inflation under control.
This time, Goldman expects the Fed to go in the opposite direction, forecasting three rate cuts this year — in July, September and November — pulling its 2026 rate cut projection forward.
Though Goldman still believes the US will narrowly avoid a recession, it acknowledged that risks are skewed to the downside. Other economists have warned the odds may already be closer to 50/50.
