Goldman Sachs has taken a significantly more negative stance on the U.S. economy and stock market due to President Donald Trump’s tariff policies. The firm now joins a growing number of economists warning that the ongoing trade war could push the U.S. into a recession and cause further trouble for stock market investors.
Goldman Sachs economists, led by Ronnie Walker, have adjusted their forecast to anticipate a 15% average tariff rate on all goods this year. This revision came in a Sunday note to clients and reflects Trump’s latest aggressive stance ahead of his scheduled “Liberation Day” tariff announcement on Wednesday. The president has indicated that he intends to impose even steeper tariffs than originally planned.
As a result, Goldman’s economic outlook has become more bearish. The firm has raised its probability of a U.S. recession within the next year from 20% to 35%. Additionally, Goldman economists have revised several key projections. Their end-of-2025 inflation estimate has been increased to 3.5%, up from 2.8% just last month. Their unemployment forecast now stands at 4.5%, which would be the highest since October 2021. Meanwhile, the firm expects gross domestic product (GDP) growth to slow to 1%, the lowest level since 2020.
Stock market expectations have also been downgraded in response to these economic concerns. Goldman strategists, led by David Kostin, warned clients that they expect the S&P 500 index to decline by 5% over the next three months. They have set a price target of 5,300 for the index in that time frame. Over the next year, they project the S&P 500 will rise by only 6%, setting a new year-ahead target of 5,900. This marks a substantial downward revision from Goldman’s previous forecast of 6,500, which was issued as recently as February 28. The nearly 10% cut in expectations reflects the increasing uncertainty surrounding Trump’s trade policies.
Big Number
6.3%—That is how much the S&P 500 declined in March through Friday’s close, putting it on track for its worst month since September 2022. This figure does not even account for an additional drop of more than 1% in premarket trading on Monday.
Key Background
On Sunday, Trump announced that he plans to impose “substantial” import taxes on “all countries” through his new reciprocal tariff policy. This marks a shift from his position just a week earlier, when he suggested that the upcoming tariffs would be “more lenient.”
Trump’s top economic official, Treasury Secretary Scott Bessent, has acknowledged that a recession is possible but has argued that any downturn would be due to unsustainable economic growth fueled by excessive government spending and imbalanced trade relationships. However, some economists have cautioned that Trump’s policies could push the U.S. into an avoidable recession. UCLA Anderson School of Management economist Clement Bohr issued a stark warning to Trump earlier this month: “If all your wishes come true, you could very well be the author of a deep recession.”
The financial markets are particularly concerned about the potential inflationary effects of tariffs. Higher tariffs typically lead to higher prices for imported goods, which could drive overall inflation upward. Persistent inflation, in turn, might force the Federal Reserve to reconsider its plans for further interest rate cuts. If the Fed decides to keep rates high to combat inflation, borrowing costs would remain elevated, potentially hurting corporate profit margins and weakening consumer demand.
Trump’s trade policies have been a point of contention among economists and investors alike. While he has long argued that tariffs will protect American industries and create jobs, critics say that the economic consequences—including higher costs for businesses and consumers—outweigh any potential benefits. Goldman’s latest forecast suggests that these concerns are becoming more widely accepted on Wall Street.
The uncertainty surrounding Trump’s tariff policy has already taken a toll on the stock market. The S&P 500’s steep decline in March suggests that investors are increasingly worried about the economic outlook. Should Trump move forward with his plans for aggressive tariffs, market volatility could continue in the coming months.
Goldman Sachs is not alone in its pessimism. Other major financial institutions have also sounded alarms about the potential economic impact of Trump’s trade policies. Many analysts believe that if tariffs remain in place or are expanded further, the risks of a prolonged economic slowdown will increase.
While the White House has maintained that tariffs will ultimately benefit the economy by reducing reliance on foreign goods, the short-term consequences appear to be negative. Businesses that rely on imported materials are already facing higher costs, and many have signaled that they will pass these costs on to consumers. This could exacerbate inflationary pressures at a time when the Federal Reserve is trying to bring inflation under control.
The bond market has also reacted to these developments, with yields on long-term U.S. Treasury bonds rising in response to inflation concerns. Higher bond yields can lead to tighter financial conditions, further slowing economic growth.
As uncertainty looms, investors will be closely watching Trump’s official announcement on Wednesday to see if his latest tariff proposals will be as severe as he has suggested. If the tariffs are implemented as planned, further market turbulence could follow.
For now, Goldman Sachs’ downgrade serves as a stark reminder of the risks facing the U.S. economy. The firm’s decision to cut its stock market targets and raise its recession probability reflects growing concerns that Trump’s trade policies could have unintended economic consequences. With inflation, unemployment, and GDP growth all expected to worsen, the outlook for the economy remains uncertain.
In the weeks ahead, economic data and corporate earnings reports will provide further insight into how businesses and consumers are responding to these policy changes. If inflation continues to rise and economic growth slows further, the Fed may have to reconsider its monetary policy stance, which could add another layer of complexity to an already volatile market environment.
Ultimately, the extent to which Trump’s tariffs impact the economy will depend on how businesses, consumers, and policymakers respond. If companies find ways to absorb higher costs without passing them on to consumers, the inflationary impact could be limited. However, if prices rise significantly, the Fed may have no choice but to keep interest rates high, potentially leading to a broader economic slowdown.
In the meantime, investors should brace for continued uncertainty. Goldman Sachs’ revised forecast suggests that market conditions could remain challenging in the near term. While long-term economic fundamentals remain strong, the immediate risks posed by Trump’s trade policies cannot be ignored.
With the S&P 500 already experiencing its worst month since 2022, the coming weeks will be critical in determining whether the market can stabilize or if further declines are ahead. The outcome of Trump’s tariff policy will likely play a key role in shaping economic and market trends for the remainder of the year.
As always, market participants will be watching closely to see how the administration’s policies evolve and whether additional economic measures are introduced to counteract potential negative effects. For now, Goldman Sachs’ latest predictions underscore the uncertainty and risks facing the U.S. economy in 2025.