U.S. Economy Faces Slowdown as Goldman Sachs Warns of Growing Recession Threat

Goldman Sachs has raised the probability of a U.S. recession within the next 12 months to 35%, up from its previous estimate of 20%.

The investment bank attributes this sharp increase to escalating trade tensions, weakening consumer and business confidence, and signs that policymakers may tolerate short-term economic strain to achieve broader goals.

President Donald Trump’s anticipated announcement of new tariffs, averaging 15% on all U.S. trading partners, has fueled concerns over economic stability.

While some exemptions may reduce the effective rate to around 9%, these measures are expected to disrupt global trade and raise costs for American businesses and consumers.

Goldman Sachs warns that these tariffs will likely push inflation higher, with core Personal Consumption Expenditures (PCE) inflation forecasted to reach 3.5% by year-end, well above the Federal Reserve’s 2% target.

The economic fallout from these policies is already evident in Goldman Sachs’ revised projections. The bank now expects U.S. GDP growth to slow to just 1.0% in 2025, down from an earlier forecast of 1.5%.

U.S. Faces Fragile Labor Market and Economic Uncertainty

Additionally, the unemployment rate is predicted to climb to 4.5% by the end of the year, reflecting a more fragile labor market as businesses grapple with higher costs and reduced demand.

To counter these challenges, Goldman Sachs anticipates three interest rate cuts by the Federal Reserve in July, September, and November. These reductions would bring the federal funds rate to a range of 3.50%-3.75%, aiming to stimulate economic activity and offset some of the negative effects of higher tariffs and slowing growth.

The broader implications of these developments are significant. Rising inflation and slowing growth create a challenging environment for policymakers, reminiscent of stagflationary periods in U.S. history.

However, Goldman Sachs does not foresee a full-blown stagflation scenario, as it expects monetary policy adjustments to mitigate some of the risks. As real income growth slows and sentiment weakens, the U.S. economy appears increasingly vulnerable.

The coming months will test whether targeted policy measures can stabilize growth or whether escalating trade tensions will push the economy closer to recession.

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