Goldman Sachs economists have increased their recession risk outlook and moved up the timing of anticipated US Federal Reserve interest rate cuts in response to President Donald Trump's aggressive new tariff measures.

In a research note dated April 6, Chief Economist Jan Hatzius and his team lowered their US GDP growth forecast for Q4 2025 to just 0.5% from 1%, and hiked the 12-month recession probability from 35% to 45%. The downgrade comes amid rapidly tightening financial conditions, rising global policy uncertainty, and growing signs of foreign consumer pushback against US goods.

“These factors are likely to significantly depress business investment and capital spending—more than we previously projected,” the note stated.

The baseline scenario assumes an increase in the effective US tariff rate by 15 percentage points. However, if the scheduled April 9 tariffs are implemented in full, Goldman estimates the effective rate could jump by 20 points, even factoring in possible country-specific exemptions. In that case, the economists warned, a formal recession forecast would likely follow.

Despite not yet shifting to a recession base case, Goldman now expects the Fed to begin easing sooner, delivering three successive 25-basis-point “insurance cuts” starting in June, instead of July. This would bring the federal funds rate down to a range of 3.5%–3.75%.

Should a recession materialize, Goldman projects the Fed would cut rates by approximately 200 basis points over the next year. Their probability-weighted forecast now reflects 130 basis points of cuts in 2025—up from the previous estimate of 105—closely aligning with current market expectations.

With global markets rattled and economic signals turning cautious, all eyes are now on the Fed's next moves as policymakers weigh the fallout from the White House’s escalating trade war.

Goldman Sachs economists have increased their recession risk outlook and moved up the timing of anticipated US Federal Reserve interest rate cuts in response to President Donald Trump's aggressive new tariff measures.

In a research note dated April 6, Chief Economist Jan Hatzius and his team lowered their US GDP growth forecast for Q4 2025 to just 0.5% from 1%, and hiked the 12-month recession probability from 35% to 45%. The downgrade comes amid rapidly tightening financial conditions, rising global policy uncertainty, and growing signs of foreign consumer pushback against US goods.

“These factors are likely to significantly depress business investment and capital spending—more than we previously projected,” the note stated.

The baseline scenario assumes an increase in the effective US tariff rate by 15 percentage points. However, if the scheduled April 9 tariffs are implemented in full, Goldman estimates the effective rate could jump by 20 points, even factoring in possible country-specific exemptions. In that case, the economists warned, a formal recession forecast would likely follow.

Despite not yet shifting to a recession base case, Goldman now expects the Fed to begin easing sooner, delivering three successive 25-basis-point “insurance cuts” starting in June, instead of July. This would bring the federal funds rate down to a range of 3.5%–3.75%.

Should a recession materialize, Goldman projects the Fed would cut rates by approximately 200 basis points over the next year. Their probability-weighted forecast now reflects 130 basis points of cuts in 2025—up from the previous estimate of 105—closely aligning with current market expectations.

With global markets rattled and economic signals turning cautious, all eyes are now on the Fed's next moves as policymakers weigh the fallout from the White House’s escalating trade war.