Goldman Sachs has increased the likelihood of a U.S. recession in the next year to 45%, up from 35%, in response to new tariffs announced by the Trump administration and the ripple effects those measures are expected to cause across the global economy.
In a note issued on April 6, economists from the investment firm, led by Jan Hatzius, said they now expect U.S. economic growth for the final quarter of 2025 to slow more than previously thought—down to a 0.5% annual rate from 1%. Their outlook reflects a combination of tighter financial conditions, reduced business investment, and increased uncertainty driven by the trade war.
Goldman’s projection assumes that tariffs will rise by 15 percentage points overall. However, if the full set of tariffs scheduled for April 9 goes into effect, that estimate could rise to a 20-point increase—potentially enough to trigger a change in Goldman’s baseline to a full recession forecast.
“If those added tariffs are enacted without delay or revision, we’ll likely shift to calling for a recession,” the analysts wrote.
The investment bank also adjusted its expectations for Federal Reserve policy. Previously forecasting the first rate cut in July, Goldman now sees the central bank beginning to ease rates in June, delivering three consecutive 25-basis point reductions. In a downturn, the cuts could go deeper—potentially reaching 200 basis points over the coming year.
As a result of the revised recession odds, Goldman’s new estimate reflects 130 basis points of cumulative rate cuts in 2025—up from the earlier projection of 105—bringing it closer to where markets are currently pricing in.
Other major banks have also sounded the alarm. J.P. Morgan now puts the odds of a recession at 60%, while Wells Fargo sees annual growth dipping to 1%. S&P Global has adjusted its risk estimate to around 35%, and HSBC now places it at 40%. The shared concern among forecasters stems from fears that tariffs will not only disrupt global trade flows but also lead to retaliation from key partners, including China.
The Fed currently maintains its benchmark interest rate at 4.25%-4.50%. Should trade tensions intensify and growth falter further, policymakers may act more aggressively than previously expected to stabilize the economy.
Traders are also recalibrating expectations. Market data suggests that investors are betting on at least four rate cuts this year.
In the face of these developments, Goldman’s revised outlook reflects a broader shift in sentiment on Wall Street. While a recession isn’t yet the firm’s primary call, the odds are rising, and the path forward will depend heavily on how global trade policy evolves in the weeks ahead.
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