Goldman Sachs Raises 2025 U.S. Tariff Expectation by 15 Percentage Points, Warns of Economic Slowdown
2min read Goldman Sachs has significantly raised its expectations for U.S. tariffs in 2025, warning that escalating trade tensions could seriously impact economic growth, inflation, and employment. The bank now expects the average U.S. tariff rate in 2025 to increase by 15 percentage points, up from the previous baseline of 10 percentage points. This adjustment is primarily due to the anticipated "reciprocal tariffs" to be announced by the U.S. administration, which are expected to impose an average 15% tariff on all U.S. trading partners, with the average actual impact of tariffs expected to increase by 9 percentage points.
The bank has also raised its core PCE inflation expectation for the end of 2025 in the U.S. by 0.5 percentage points to 3.5%, citing the impact of rising import costs on inflation. The GDP growth rate in the fourth quarter is expected to slow to 1.0%, down 0.5 percentage points from previous expectations, and the unemployment rate is expected to rise to 4.5% by the end of the year. goldman sachs has raised the probability of an economic recession in the U.S. in the next 12 months to 35%, citing weak consumer and business sentiment, and indications that policymakers may be more willing to accept the recent economic pain to pursue broader policy goals. With real income growth already slowing, the economy may be entering a more fragile stage, where sentiment and policy risks are a bigger drag on the economy than in recent years.
The increased recession probability reflects a broader sense of economic uncertainty. Households and businesses are feeling the pinch of higher prices and increased costs, which are being exacerbated by the imposition of tariffs. According to Goldman Sachs estimates, the tariffs could push vehicle prices up by $5,000 to $15,000, adding significant cost pressure on American consumers. This cost pressure is expected to reduce U.S. GDP growth by approximately 0.8 percentage points over the next year, with tax cuts and regulatory easing only offsetting 0.1 to 0.2 percentage points of this decline.
The series of tariffs imposed by the U.S. administration has severely impacted the confidence index of American businesses and consumers. The sentiment has been hit by the announcement of a 25% tariff on all foreign-made cars and light trucks, effective April 2. This move has rattled the market and added to the overall economic uncertainty.
Goldman Sachs has also revised its U.S. GDP growth forecast for 2025 downward from 2.4% to 1.7%, citing increasingly adverse trade policy assumptions. The investment bank's analysts have warned that the potential rate cuts cannot come quickly enough to mitigate the economic slowdown. The market’s reaction suggests investors may be anticipating even weaker economic performance than the lowered growth forecasts from Goldman Sachs and other institutions.
Ask Aime: What's the impact of Goldman Sachs' raised expectations for U.S. tariffs on the economy and markets?
The economic data and forecasts paint a picture of a U.S. economy under significant strain. The relationship between Temporary Help Services jobs and the macroeconomy is complex, but declines in these jobs are often considered a leading indicator of a potential recession. The current decline in Temporary Help Services Jobs stands at -5.79% year-over-year in February, which is a cause for concern.
In summary, Goldman Sachs' revised recession probability and tariff rate expectations highlight the growing economic uncertainty in the U.S. The imposition of tariffs and the resulting cost pressure on consumers and businesses are expected to weigh heavily on economic growth. The investment bank's analysts warn that the potential rate cuts cannot come quickly enough to mitigate the economic slowdown, and the market’s reaction suggests investors are anticipating even weaker economic performance. The economic data and forecasts paint a picture of a U.S. economy under significant strain, with the potential for a recession looming on the horizon.
