Goldman Sachs has raised its forecast for inflation to 3.5% this year and cut its GDP outlook to just 1%, citing the risk of aggressive US tariffs under President Donald Trump’s leadership. The investment bank now expects a near-standstill economic growth rate due to the impact of tariffs on inflation and unemployment.
In a note published on Sunday, Goldman Sachs sees tariff rates jumping by 15 percentage points, which could drag economic growth to a standstill. However, product and country exclusions will eventually reduce this increase to 9 percentage points.
The firm also raised its view on unemployment from 3.7% to 4.5%, with a 35% chance of recession in the next 12 months, up from 20%. Goldman Sachs expects weak economic growth of just 0.2% annualized rate in the first quarter and 1% for the full year.
The forecast paints a picture of a stagflation economy, characterized by low growth and high inflation. Unlike previous instances of stagflation, Goldman Sachs does not expect the Federal Reserve to cut interest rates to combat inflation, instead predicting three rate cuts this year.
“We have pulled the lone 2026 cut in our Fed forecast forward into 2025 and now expect three consecutive cuts this year,” said the Goldman economists. The terminal rate is expected to remain unchanged at 3.5%-3.75%.
Source: https://www.cnbc.com/2025/03/30/tariffs-to-spike-inflation-stunt-growth-and-raise-recession-risks-goldman-says-.html