Goldman Sachs upgrades US recession risk to 45% amid escalating trade war tensions

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Goldman Sachs has raised its forecast for the likelihood of a US recession to 45%, up from 35%, marking the second time in a week the investment bank has increased its odds amid growing concerns over the trade war. This adjustment follows heightened fears that tariffs proposed by US President Donald Trump could significantly disrupt the global economy.
Goldman had initially raised its recession probability from 20% to 35% last week due to concerns that Trump’s planned tariffs would create a major economic shock. However, after Trump announced even steeper-than-expected tariffs, global markets experienced a selloff, prompting further revisions to the forecast, according to news agency Reuters.
At least seven major investment banks have followed suit in raising their recession risk predictions. Notably, JP Morgan now estimates a 60% chance of both a US and global recession, warning that the tariffs will likely not only increase US inflation but could also provoke retaliatory actions from other nations, particularly China, which has already imposed tariffs on US goods.
Goldman Sachs also revised its US economic growth outlook for 2025, lowering it to 1.3% from 1.5%. This revision is still more optimistic than Wells Fargo Investment Institute’s (WFII) forecast of 1% growth. Meanwhile, JP Morgan has taken a more pessimistic view, forecasting a 0.3% contraction on a quarterly basis.
On the other hand, Morgan Stanley noted in a Sunday report that while a recession is not included in their base case, it has become a “realistic bear case” given the current economic uncertainties, as per Reuters.
Goldman Sachs now expects the Federal Reserve to begin cutting interest rates in June, earlier than previously anticipated, with a 25 basis point reduction in three consecutive meetings. The bank had initially forecast the first rate cut to occur in July.
JP Morgan now predicts rate cuts in each of the Fed meetings in 2025, starting in June, with a further cut in January, bringing the upper bound of the policy rate to 3%. It had previously expected the Fed to lower rates twice this year, from the current range of 4.25% to 4.50%.
Meanwhile, WFII has revised its forecast and now expects three rate cuts this year, up from one. According to data from LSEG, traders are currently expecting 116 basis points of rate cuts this year, signalling that the Fed may reduce rates in at least four of its remaining five meetings.
Here’s a breakdown of US recession odds before and after Trump’s tariff announcements, as reported by Reuters: