Goldman Sachs (GS) has sounded the alarm bell on the US economy ahead of President Trump’s unveiling of reciprocal tariffs later this week.
The takeaway? Trump’s so-called “Liberation Day” package could end up liberating the inflation beast.
The president has pledged to unveil universal like-for-like tariffs on April 2. It’s unclear what the new tariff rates will be and who they will apply to, as countries have lobbied to be spared from the worst. But Trump last week vowed to place “substantial tariffs” on US trading partners.
The higher tariffs are likely to boost consumer prices, Goldman’s chief economist Jan Hatzius wrote in a note to clients on Monday. He lifted his year-end forecast for core Personal Consumption Expenditures (PCE) inflation by 5 percentage points to 3.5% growth year over year.
The revised forecast reflects an increase in Hatzius’ tariff assumptions, which he raised for the second time in less than a month. The economist now expects the average US tariff rate to rise 15 percentage points this year, versus five percentage points in an earlier estimate.
Read more: What Trump’s tariffs mean for the economy and your wallet
Hatzius now sees US gross domestic product coming in at 1% for 2025, a cut of 0.5% from his earlier expectations. In addition, he sees a 35% chance of a US recession in the next 12 months, compared with 20% previously.
“The upgrade from our previous 20% estimate reflects our lower growth baseline, the sharp recent deterioration in household and business confidence, and statements from White House officials indicating greater willingness to tolerate near-term economic weakness in pursuit of their policies,” Hatzius explained.
He added: “While sentiment has been a poor predictor of activity over the last few years, we are less dismissive of the recent decline because economic fundamentals are not as strong as in prior years.”
Read more: Are you buying the dip in stocks?
Markets are on edge again as worries about tariffs ripple through corporate America, with the threat of retaliation by trading partners against US exports adding to the potential impact of hiked duties on US imports.
The Dow Jones Industrial Average (^DJI) lost 716 points on Friday, for a drop of about 1.7%. At the same time, the S&P 500 (^GSPC) tumbled nearly 2%, while the Nasdaq Composite (^IXIC) tanked 2.7%. The broad benchmark S&P 500 is down 5% year to date, and tracking toward its worst quarter since September 2022.
At close: March 28 at 4:46:18 PM EDT
^GSPC ^DJI ^IXIC
Some targeted countries have wasted no time hitting back.
