US recession risk surges to 45% amid Trump's tariff turmoil
What's the story
Goldman Sachs economists, led by Jan Hatzius, have raised the odds of a US recession to 45% from 35% previously. The revision comes after the Trump administration's tariff announcement last week.
The team also lowered their US GDP growth forecast for Q4-to-Q4 in 2025 from 1% to 0.5%.
The economists cited "a sharp tightening in financial conditions, foreign consumer boycotts, and a continued spike in policy uncertainty" as factors likely to depress capital spending more than previously assumed.
Tariff implications
Tariff changes could impact economic predictions
Trump's newly imposed tariffs, set to take effect on April 9, include levies as high as 50% on imports from key trading partners.
The economists' baseline forecast relies on an expected overall increase in the effective US tariff rate by 15% points.
This would require a major cut in the tariffs scheduled to come into effect tomorrow.
If these tariffs are imposed as scheduled, the economists estimate that the effective tariff rate could increase by about 20% points.
Rate cuts
Federal Reserve's potential response to recession
In a recession scenario, Goldman Sachs economists would expect the Fed to cut rates by around 200 basis points (bps) over the next year.
Their updated Fed forecast now calls for 130bps of rate cuts this year, up from a previous estimate of 105bps.
The adjustment is in line with market pricing as of Friday's close and signals a potential shift in monetary policy in response to changing economic conditions.
Global uncertainty
60% chance of global recession due to tariffs
The increased recession risk has resulted in falling bond yields, oil prices, and stocks.
Last week, JPMorgan's Chief Economist Bruce Kasman warned that the tariffs imposed by the Trump administration on US's trading partners could lead to a global recession in 2025.
In a note titled "There will be blood," Kasman wrote, "The risk of recession in the global economy this year is raised to 60%, up from 40%."