Recession Fears Mount as Tariffs Bite Deeper

The odds of a US recession have jumped as President Trump’s trade war heats up, according to Goldman Sachs. The bank now sees a 35% chance of a downturn within a year—up sharply from its earlier prediction of 20%. 

Goldman also cut its 2025 GDP growth forecast to just 1%, while nudging its year-end unemployment expectation up slightly to 4.5%.

Behind these numbers lies a sharp decline in consumer confidence. A recent University of Michigan survey showed more Americans now expect unemployment to climb than at any time since the Great Recession, and inflation expectations have hit a 32-year high. 

Goldman noted that while sentiment alone doesn't always predict downturns accurately, weaker economic fundamentals mean today's pessimism can't be ignored.

The primary culprit? Escalating tariffs. Goldman now forecasts the average US tariff rate could rise by 15 percentage points this year—previously a worst-case scenario—before moderating slightly to around 9 points once exemptions take effect. 

Higher tariffs across the board would substantially squeeze household incomes by raising consumer prices, fueling inflation, and eroding purchasing power. The bank now expects core inflation to reach 3.5% by year-end, up from an earlier projection of 3%. Core inflation had already accelerated to 2.8% in February.

What Does This Mean for Me?

With Trump dismissing earlier tariff limits suggested by advisors, markets and CEOs are increasingly uneasy. Analysts now believe the Fed will intervene aggressively, predicting three interest rate cuts this year, compared to prior expectations of two cuts. Amid rising uncertainty, investors are watching closely to see how deep—and costly—this trade war will get.