As President Donald Trump prepares to announce new tariffs this week, Goldman Sachs has raised alarms over their potential economic impact. The investment bank expects that aggressive tariffs could significantly increase inflation, raise unemployment, and slow economic growth. Goldman Sachs now predicts a 15 percentage point tariff rate hike, though product and country exclusions might reduce this to 9 percentage points.
In a report published on Sunday, Goldman warned that the risks of these new tariffs, set to be announced on April 2, are greater than many market participants had anticipated. This prediction aligns with the bank’s revised outlook, which includes inflation rates surpassing the Federal Reserve’s 2% target. Goldman now forecasts core inflation to reach 3.5% by 2025, a 0.5 percentage point increase from previous projections. This inflationary pressure will coincide with weak economic growth, with an expected annualized growth rate of just 0.2% in Q1 and 1% for the full year.
Additionally, Goldman revised its unemployment forecast to 4.5%, up 0.3 percentage points from prior expectations, signaling a rise in joblessness. Given these developments, Goldman now anticipates a 35% chance of a recession within the next 12 months, a significant increase from the prior 20% estimate.
The potential for stagflation — a combination of high inflation and low economic growth — looms larger in this scenario. Goldman sees this as a possibility, recalling the U.S. stagflation period of the late 1970s and early ’80s. However, Goldman’s economists do not foresee a repeat of the past, projecting instead that the Federal Reserve will lower interest rates three times in 2023.
With tariff rates still unclear, reports suggest Trump may push for even more aggressive tariffs, potentially raising levies by 20% across U.S. trading partners. This strategy could deepen the strain on the U.S. economy as it faces growing challenges from inflation and low growth.
