Goldman Sachs Revises Economic Forecast Amid Upcoming Tariffs from Trump Administration

As President Donald Trump prepares to introduce new tariff measures this week, investment bank Goldman Sachs has adjusted its economic outlook, warning of potential inflation increases and a slowdown in economic growth. The impending changes are expected to significantly impact both the labor market and inflation rates.

Increased Tariff Projections

Goldman Sachs anticipates that the tariff rates may surge by 15 percentage points when Trump unveils reciprocal tariffs, significantly altering its previous risk scenarios. The bank notes that while certain products and exemptions could mitigate this increase to an estimated 9 percentage points in the future, the immediate projections remain unnerving.

Economic Implications

Goldman’s economic team, led by Jan Hatzius, suggests that the repercussions of these tariffs could lead to broader economic challenges:

• Inflation: The core inflation rate, excluding food and energy, is expected to reach 3.5% in 2025, exceeding the Federal Reserve’s target goal of 2% by a notable margin.
• Growth Rates: The bank predicts that the U.S. economy will experience sluggish growth, estimating a mere 0.2% annualized growth in the first quarter of 2025 and 1% for the year in total.
• Unemployment: The unemployment rate could rise to 4.5%, reflecting a 0.3 percentage point increase from earlier forecasts.

Rising Recession Risks

Goldman Sachs has also raised the likelihood of a recession occurring in the next year from 20% to 35%, stating that the risks associated with the upcoming tariffs are greater than previously acknowledged by market participants. This situation mirrors the economic turbulence of the late 1970s when stagflation—characterized by stagnant growth and high inflation—was predominant.

Monetary Policy Adjustments

Unlike the Fed’s historical approach during past inflationary periods, Goldman predicts that the current Federal Reserve may reduce its benchmark interest rate three times throughout 2025. These cuts, anticipated to happen in July, September, and November, would decrement the fed funds rate from its current 4.25% to between 3.5% and 3.75%.

Eventual Tariff Implementation

While the specifics of the new tariffs are still under consideration, reports indicate that Trump is advocating for aggressive measures, potentially imposing a uniform tariff rate of up to 20% across all U.S. trading partners. The forthcoming announcement promises to be a focal point for economic discussions as businesses and consumers prepare for possible shifts in prices and trade dynamics.