Goldman Sachs Warns Trump Tariffs Could Trigger Inflation Surge, Growth Slowdown, and Recession Risks

Washington, D.C. – As anticipation builds around former President Donald Trump’s expected announcement of new tariffs on April 2, Goldman Sachs has issued a stark warning, predicting that the aggressive trade measures could ignite higher inflation, stall economic growth, and raise the likelihood of a recession in the United States.

In a note released Sunday, the investment bank projected that the upcoming tariffs — once considered a risk scenario — are now more likely to materialize, leading to a 15-percentage-point spike in tariff rates. After accounting for product and country-specific exclusions, the overall increase is expected to level off at around 9 percentage points.

Key Economic Forecast Adjustments

As a result of these potential trade policy shifts, Goldman Sachs economists, led by Jan Hatzius, revised several key economic indicators:

• Inflation (Core, excluding food and energy):
  Projected to rise to 3.5% in 2025, up by 0.5 percentage points, far above the Federal Reserve’s target of 2%.

• GDP Growth:
  Slashed to 1% for the full year, with the first quarter seeing near-stagnant growth at just 0.2% annualized.

• Unemployment:
  Expected to increase to 4.5%, marking a 0.3-point rise from the previous estimate.

• Recession Risk:
  Now pegged at 35% over the next 12 months, up from 20% in earlier forecasts.

Stagflation Concerns Loom

The convergence of higher inflation and slowing growth has raised fears of a stagflation-like scenario, echoing economic conditions seen in the late 1970s and early 1980s. Back then, the U.S. Federal Reserve, under Chairman Paul Volcker, hiked interest rates dramatically to curb inflation, triggering a deep recession.

However, Goldman Sachs analysts do not anticipate a similar monetary response this time. In contrast, they now expect the Federal Reserve to cut interest rates three times in 2025, moving one previously anticipated 2026 cut forward.

Federal Reserve Forecast Update:

• Rate Cuts Expected in:
  July, September, and November

• New Terminal Rate Forecast:
  3.5%–3.75%, down from the current range of 4.25%–4.50%

Uncertainty Over Final Tariff Scope

While full details of Trump’s planned tariffs remain undisclosed, reports from the Wall Street Journal suggest the former president is advocating for broad-based levies of up to 20% on U.S. trading partners. These aggressive trade measures, if implemented, would have wide-reaching implications for global supply chains, consumer prices, and business sentiment.

“We continue to believe the risk from April 2 tariffs is greater than many market participants have previously assumed,” the Goldman note stated.

With Trump set to make a formal announcement this week, businesses, investors, and policymakers are bracing for potential market volatility and deeper macroeconomic consequences.