Goldman Sachs Sounds Alarm: U.S. Recession Odds Climb to 45% Amid Tariff Tensions

On April 7, 2025, Goldman Sachs, a leading global investment bank, raised its forecast for the likelihood of a U.S. recession within the next 12 months to 45%, up from its previous estimate of 35%. This adjustment comes amid growing concerns over the economic fallout from sweeping tariffs introduced by the administration of U.S. President Donald Trump. The announcement, reported by Reuters, reflects a broader trend among major financial institutions revising their economic outlooks as fears of a trade war intensify. Goldman Sachs’ updated projection aligns with a tightening of financial conditions, a surge in policy uncertainty, and the potential for reduced capital spending—all factors that could tip the world’s largest economy into a downturn.

The catalyst for this shift appears to be the Trump administration’s aggressive trade policies, particularly implementing broad tariffs to address trade imbalances. These measures have rattled global markets, prompting foreign consumers to boycott American goods and businesses to reconsider investment plans. Goldman Sachs noted that the economic fundamentals, while previously robust, are showing signs of strain. Just last month, the bank had increased its recession odds from 20% to 35%, citing a weakening foundation compared to prior years. The latest jump to 45% underscores how quickly sentiment has deteriorated as the implications of tariffs become clearer. Other major banks, such as J.P. Morgan, have gone further, pegging the odds of a U.S. and global recession at 60%, highlighting the widespread alarm within the financial sector.

Goldman Sachs’ economists attribute the heightened risk to several interconnected factors. The tightening of financial conditions—driven by market volatility and rising borrowing costs—has made it harder for businesses to operate as usual. Policy uncertainty, fueled by the unpredictable scope and duration of the tariffs, discourages companies from making long-term investments. This hesitation could lead to a significant drop in capital spending, a key driver of economic growth. Additionally, foreign consumer boycotts are already dampening demand for U.S. exports, further straining an economy that has so far avoided a downturn. While Goldman Sachs still sees a recession as less than a coin toss, the 45% probability marks a notable departure from earlier optimism.

The broader implications of this forecast are significant. If the tariffs scheduled for April 9, 2025, are fully implemented, Goldman Sachs warns that the effective U.S. tariff rate could rise by 15 percentage points, potentially triggering a deeper economic slowdown. In a worst-case scenario, the bank suggests that the Federal Reserve might need to slash interest rates by 200 basis points over the next year to mitigate the damage. Their baseline assumes three 25-basis-point cuts starting in June, reflecting a cautious approach to staving off a recession. However, the situation remains fluid, with global markets on edge and investors closely watching for signs of further escalation.

As the U.S. navigates this uncertain landscape, Goldman Sachs’ updated odds are a stark reminder of the delicate balance between policy decisions and economic stability. While a recession is not yet inevitable, the rising probability signals a critical juncture where the choices made in the coming months could determine whether the economy weathers the storm or succumbs to it.