From 35% to 45%! One week later, Goldman Sachs once again raises the probability of a U.S. recession

Goldman Sachs sounds the alarm again: the probability of a U.S. recession soars to 45%, focusing on the actual implementation of tariffs on April 9.

On April 6, Goldman Sachs analysts Jan Hatzius, David Mericle, and others published a research report titled "U.S. Economy: Countdown to Recession," downgrading the forecast for U.S. GDP growth in the fourth quarter of 2025 from the previous 1.0% to just 0.5%, and significantly raising the probability of the U.S. economy entering a recession in the next 12 months from the previous 35% to 45%.

Just last Monday, Goldman Sachs had just raised the probability of a U.S. economic recession in the next 12 months from the previous 20% to 35%.

The report analyzes that the "reciprocal tariffs" announced by President Trump on April 2 have led to a sharp tightening of financial conditions, posing direct downward pressure on economic growth.

Not just tariffs: A double blow from consumer boycotts and policy uncertainty

In addition to the tightening of financial conditions, Goldman Sachs also pointed out two other factors dragging down the economy.

First, the sentiment of overseas consumers boycotting U.S. goods and tourism is heating up.

The report shows that the number of foreign tourists visiting the U.S. sharply declined following the tariff news, and this consumer boycott not only affects the tourism industry but also impacts exports of food, beverages, passenger cars, and other consumer goods, which is expected to cause an additional drag of 0.1 to 0.2 percentage points on U.S. GDP growth in 2025.

The report states that this impact was not fully incorporated into Goldman Sachs' previous forecasting model.

Second, policy uncertainty has surged to levels far exceeding those during the last trade war.

The report emphasizes that the current policy uncertainty is broader in scope, affecting a greater number of U.S. companies than before, and is not limited to tariffs but may also involve other policy areas such as fiscal and immigration policies.

This high level of uncertainty will have a significant negative impact on corporate fixed asset investment, and Goldman Sachs expects that capital expenditure growth may decrease by about 5 percentage points over the next year, leading to near stagnation in growth and potentially affecting the hiring market.

Key juncture: April 9 tariff decision determines whether the economy "hard lands"

It is noteworthy that Goldman Sachs' currently downgraded baseline forecast (0.5% GDP growth, 45% recession probability) is still based on a key assumption: that the total effective tariff rate in the U.S. ultimately rises by 15 percentage points. To achieve this scenario, a "substantial reduction" of most tariffs scheduled to take effect on April 9 is required.

However, the report issues a stern warning: if the White House indeed implements most or all of the proposed tariff measures on April 9, considering the potential subsequent industry-specific tariffs, even if specific agreements are reached with some countries in the future, the effective tariff rate in the U.S. could ultimately rise by about 20 percentage points.

Goldman Sachs clearly states that if this scenario occurs, they expect to adjust their baseline forecast to "the U.S. economy entering a recession."

"Insurance-style" Rate Cuts May Arrive Early

In its current non-recession baseline scenario, Goldman Sachs expects the Federal Reserve to implement "insurance-style" rate cuts, starting as early as June this year (previously expected in July), with three consecutive cuts of 25 basis points each, lowering the federal funds rate target range to 3.5-3.75%.

In a recession scenario, Goldman Sachs anticipates that the Fed's rate cuts will be much more significant, potentially reducing rates by about 200 basis points over the next year.

Considering the probabilities of various scenarios, Goldman Sachs' probability-weighted forecast indicates that the Fed may cut rates by a total of 130 basis points this year, an increase from the previous expectation of 105 basis points, and it is quite close to the market pricing at last Friday's close—suggesting that the market may have begun to digest higher recession risks and a more dovish policy path from the Fed.

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