Goldman Sachs Group Inc. economists raised their recession probability assessment and brought forward the forecast timing of the next US Federal Reserve interest-rate cut following the Trump administration’s tariff announcement.
Economists led by Jan Hatzius lowered their 2025 Q4-to-Q4 GDP growth forecast to 0.5% from 1% and raised the 12-month recession probability to 45% from 35%, according to a research note dated April 6.
This follows “a sharp tightening in financial conditions, foreign consumer boycotts, and a continued spike in policy uncertainty that is likely to depress capital spending by more than we had previously assumed,” they said.
The economists said their baseline forecast still rests on the assumption that the effective US tariff rate would rise by 15 percentage points in total, which would require a large reduction in the tariffs scheduled to take effect on April 9.
If most of the April 9 tariffs do take effect, they said, then the effective tariff rate will rise by an estimated 20 points once those increases and likely sectoral tariffs take effect, even allowing for some country-specific agreements at a later date.
“If so, we expect to change our forecast to a recession,” they said.
In the current non-recession baseline, the Goldman economists said they expect the Fed to deliver a package of three consecutive 25-basis point “insurance cuts” starting in June versus July previously, lowering the funds rate to 3.5-3.75%.
“In a recession scenario, we would instead expect the Fed to cut by around 200bp over the next year,” they said. “Our probability-weighted Fed forecast now implies 130bp of rate cuts this year (up from 105bp previously, reflecting the increase in our probability of recession), similar to market pricing as of Friday’s close.”
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