Goldman Sachs, the "optimists," has lowered its GDP forecast for the United States and raised its inflation expectations, now also seeing "stagflation."

As Trump's tariff policy gradually comes to fruition, Wall Street's concerns about the U.S. economic outlook and the risk of "stagflation" are intensifying.

Recently, Goldman Sachs, once regarded as an "optimist," joined the ranks of those lowering U.S. economic growth expectations, reducing the 2025 U.S. GDP growth forecast from 2.4% to 1.7%, marking the first time in over two years that the bank has lowered its GDP forecast below the general expectation level.

Jan Hatzius, head of Goldman Sachs' economic team, explicitly stated in the report:

"The reason for the downward revision is that our assumptions about trade policy have become quite unfavorable."

At the same time, Goldman Sachs raised its inflation expectations for the U.S., forecasting that by the end of this year, the Federal Reserve's preferred inflation measure—the core PCE price index—will reach 3%, higher than the previously predicted mid-term level of 2%.

Some analysts believe that Goldman Sachs' shift marks an accelerating concern in the market regarding the risk of "stagflation."

Tariff Policy Stronger Than Expected, May Weigh on Economic Outlook

Goldman Sachs expects that this year, the average tariff rate in the U.S. will rise by 10 percentage points, double their previous forecast and five times the level during Trump's first term.

The report explains that tariffs will primarily impact the overall economic outlook through three key channels: first, new tariffs are expected to push up consumer prices, thereby reducing consumers' real income; second, tariffs typically accompany tighter financial conditions; third, the uncertainty surrounding the implementation of tariffs is likely to prompt businesses to "delay investments."

In terms of monetary policy path, despite facing sticky inflation, Goldman Sachs still expects the Federal Reserve to have room to cut interest rates twice this year in June and December.

The report also adds that the uncertainty of Trump's policies may cause the central bank to remain on hold in the short term:

"Our near-term view is that the FOMC will want to remain cautious and avoid making news until the policy outlook becomes clearer."

Wall Street Consensus Shifts Towards Recession and "Stagflation"?

In fact, Goldman Sachs is not the only Wall Street investment bank to lower U.S. economic expectations.

Last Friday, Morgan Stanley's chief U.S. economist Michael Gapen also reduced the 2025 U.S. GDP growth forecast from 1.9% to 1.5% in a report to clients, while also predicting that the core PCE price index will reach 2.7% by the end of 2025, higher than the previous expectation of 2.5%.

Mohamed El-Erian, former CEO of Pacific Investment Management Company (PIMCO), told the media that he now estimates the probability of the U.S. economy entering a recession this year to be 25% to 30%, up from 10% before the implementation of Trump's tariff policy The prediction market platform Polymarket shows that as of Monday, the market estimates the probability of an official announcement of an economic recession in the United States before the end of this year to be about 40%, up from 23% on February 27.