Goldman Sachs Raises US Recession Odds to 45%
Goldman Sachs has significantly increased its forecast for a U.S. recession, now estimating the likelihood at 45%, up from 35%. This marks the second adjustment in just a week, driven by escalating concerns over the ongoing trade war and the impact of proposed tariffs by President Donald Trump. The investment bank’s revised outlook reflects a growing apprehension that these tariffs could severely disrupt the global economy.
Escalating Concerns Over Tariffs
The initial increase in recession probability from 20% to 35% occurred last week, following Trump’s announcement of tariffs that were steeper than anticipated. This announcement triggered a selloff in global markets, prompting Goldman Sachs to reassess its forecasts. The bank is not alone in this reevaluation; at least seven major investment banks have also raised their recession risk predictions. Notably, JP Morgan has taken a more pessimistic stance, estimating a 60% chance of recession for both the U.S. and global economies. They warn that the tariffs could lead to increased inflation in the U.S. and provoke retaliatory measures from other countries, particularly China, which has already imposed tariffs on U.S. goods.
Adjustments to Economic Growth Projections
In addition to raising recession odds, Goldman Sachs has revised its economic growth outlook for the U.S. in 2025, lowering it to 1.3% from a previous estimate of 1.5%. This forecast remains more optimistic than that of Wells Fargo Investment Institute (WFII), which predicts only 1% growth. Meanwhile, JP Morgan has adopted a more pessimistic view, forecasting a quarterly contraction of 0.3%. Morgan Stanley, while not including a recession in its base case, acknowledges that it has become a “realistic bear case” amid current economic uncertainties.
Anticipated Interest Rate Cuts
Goldman Sachs now expects the Federal Reserve to initiate interest rate cuts as early as June, with a projected reduction of 25 basis points in three consecutive meetings. This is a shift from their earlier forecast, which anticipated the first rate cut in July. JP Morgan has also adjusted its expectations, predicting rate cuts at each of the Fed’s meetings in 2025, starting in June, with an additional cut in January. Previously, they had expected only two rate reductions this year, bringing the upper bound of the policy rate down to between 4.25% and 4.50%. In contrast, WFII has revised its forecast to anticipate three rate cuts this year, up from one, reflecting a broader expectation among traders for significant reductions in the coming months.
Summary of Recession Odds
The following table summarizes the updated recession odds from various banks before and after Trump’s tariff announcements:
| Bank | US Recession Odds After Tariffs | US Recession Odds Before Tariffs |
|—————|———————————-|———————————-|
| JP Morgan | 60% | 40% |
| Goldman Sachs | 45% | 35% |
| S&P Global | 30-35% | 25% |
| HSBC | 40% | – |
As the economic landscape continues to shift, these forecasts highlight the growing uncertainty surrounding the U.S. economy and the potential ramifications of trade policies.
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