Goldman Sachs forecasts that potential new tariffs from President Trump could significantly damage the U.S. economy, leading to higher inflation, slower growth, and increased unemployment.
The investment bank anticipates these tariffs could push core inflation (excluding food and energy) to 3.5% by 2025, well above the Federal Reserve's 2% target. They also project a sharp slowdown in economic growth to just 1% for the full year (Q4 2024 to Q4 2025) and a rise in unemployment to 4.5%.
These factors lead Goldman Sachs to increase its estimated probability of a recession within the next 12 months to 35%, up from a previous 20% forecast. While this scenario raises concerns about stagflation (low growth combined with high inflation), the bank does not expect the Federal Reserve to react by aggressively raising interest rates as it did in the past.
Instead, Goldman Sachs predicts the Fed will cut its benchmark interest rate three times this year (in July, September, and November), ultimately lowering the target range to 3.5%-3.75%.
The exact details and extent of any new tariffs remain uncertain, although reports suggest potentially aggressive and broad levies are being considered.