Goldman Sachs latest forecast: The U.S. is approaching 0 growth this year, inflation is rising sharply, and the outlook for the dollar is very pessimistic

Goldman Sachs issued a stern warning regarding the outlook for the U.S. economy: the U.S. economy is approaching 0% growth this year, with inflation expectations significantly raised to around 3.5%. Goldman Sachs also believes that the dollar is currently overvalued by about 20%.

According to Shanghai Securities News, during intraday trading on April 9th Eastern Time, U.S. President Trump posted on social media that he has authorized a 90-day suspension of tariffs on certain countries, during which tariffs will be significantly reduced to 10%.

After Trump announced the 90-day suspension of certain tariffs, Goldman Sachs retracted its recession forecast issued less than two hours earlier, but in its latest report, Goldman Sachs stated that this does not mean the outlook is optimistic.

U.S. Economy Approaching 0% Growth, High Risk of Recession

According to Goldman Sachs' forecast, even without additional tariffs, the effective tariff rate in the U.S. will still increase by about 15 percentage points, which will cause U.S. GDP growth to sharply decline from 2.5% in 2024 to 0.5% in 2025 (year-on-year quarterly calculation).

Goldman Sachs stated that while it may not lead to a complete recession, economic growth will significantly slow down. The report shows that the risk of recession still exists, with the probability of the U.S. economy falling into a full-blown recession within the next 12 months as high as 45%.

The report emphasized that the labor market is crucial. Although the March employment report was robust and initial jobless claims remained low, recruitment activities may further decrease in an extremely uncertain business environment.

Goldman Sachs predicts that the unemployment rate will rise to 4.7% by the end of 2025, with risks skewed towards a larger increase. Currently, the unemployment rate in the U.S. is 4.2%.

Inflation Outlook Worrisome: Tariffs Will Push Prices Up

Goldman Sachs expects that based on March's Consumer Price Index (CPI) and Producer Price Index (PPI) data, the core Personal Consumption Expenditures (PCE) price index will rise by 2.52% year-on-year, but under the tariff baseline scenario, it is expected to accelerate to around 3.5% in the next six months.

The report states that the key issue is the stability of long-term inflation expectations. Multiple surveys show a significant rise in inflation expectations, while market-based inflation indicators remain consistent with the Federal Reserve's 2% target. Federal Reserve officials need more data to assess whether the tariff-driven price increases should be viewed as a one-time level change or a more persistent rise in inflation.

Goldman Sachs predicts that the Federal Reserve will cut interest rates by 25 basis points in June, July, and September to address the risk of a more severe decline in the labor market.

If growth is slightly better than expected and inflation concerns persist, the Federal Reserve may not cut rates this year.

If the economy falls into recession and the unemployment rate rises significantly, we may see the Federal Reserve cut rates by more than 200 basis points, as historically, during economic recessions, rate cuts typically range from 400 to 500 basis points.

Goldman Sachs believes that from a probability-weighted perspective, the market still underestimates the extent of rate cuts in the coming year.

Deteriorating Outlook for the Dollar

The report states that Goldman Sachs' foreign exchange strategists are very pessimistic about the outlook for the dollar, especially relative to the yen, euro, and Swiss franc

Even after the depreciation in the past two months, the broad trade-weighted U.S. dollar index is still 20% higher than its long-term average.

Goldman Sachs pointed out that more importantly, the shift towards trade protectionism has weakened the outlook for the U.S. growth outperformance, not only in the short term but also in the long term. This gradual deterioration of the U.S. relative economic performance may have a greater negative impact than a full-blown recession, further disadvantaging the dollar