Goldman Sachs warns that aggressive actions by the White House in the context of trade policy in the external, international dimension will provoke an increase in inflation, cause a growth in unemployment, and practically stop the economic rise in the United States.
The mentioned statement by the specified investment financial institution, which is headquartered in New York City, was made ahead of expectations that US President Donald Trump will announce another rise in tariffs on goods imported from other countries this week. According to media reports, this levy increase is likely to be the latest round of tightening Washington’s trade policy. At the same time, the materialization of the mentioned assumption is not guaranteed.
Some regions and countries have already announced retaliatory tariffs against the United States or announced their intentions to do so. It is possible that the next increase in levies, which will be announced this week, will become a scaling factor in the plane of measures with financial consequences of tit-for-tat reactions towards Washington. It can also be assumed that the mentioned scaling will provoke another tightening of the trade policy of the United States. This potential, but not inevitable, scenario will worsen the situation in the global trade space and increase geopolitical tensions, which are already high and, to a certain extent, dangerous from the point of view of further prospects for the transformation of the existing order of things in the world.
Goldman Sachs currently expects tariff rates to rise by 15 percentage points. In the past, the financial institution experts have characterized this scenario as a risk case. Now, in their opinion, the realism of the materialization of the corresponding scenario is higher. Separately, in this context, it was noted that this probability has become a closer prospect in terms of the possibility of implementing in the space of reality against the background of another tariff increase from Washington, expected this week. At the same time, Goldman Sachs outlined that product and country exclusions will pull levies increase down to 9 percentage points.
The bank’s economic team, led by the head of global investment research Jan Hatzius, believes that another tightening of Washington’s trade policy measures will have a widespread negative impact on the situation in the United States economy.
In a note published last Sunday, March 30, it was underlined that, according to Goldman Sachs experts, the risks associated with the new phase of US actions regarding tariffs this week are greater than many market participants had previously assumed.
As for forecasts regarding the further dynamic of inflation, in this case, the financial institution sees its preferred core measure, which does not take into account food and energy prices, reaching 3.5% in the current year in the United States. It is worth noting that the previous version of the projection stipulated that the mentioned indicator would be 3%. It is also noteworthy that the specified figure significantly exceeds the Federal Reserve’s 2% inflation target.
Moreover, a financial institution, expects the unemployment rate in the United States to reach 4.5% in the current year. The previous version of this forecast provided that the mentioned figure would be 4.2%.
Goldman Sachs also predicts that Washington’s measures and their consequences will contribute to weakening the growth of the United States economy. The financial institution’s forecast predicts that the US gross domestic product (GDP) will grow by 0.2% in the first quarter of 2025. The bank also expects that the mentioned indicator will increase by 1% for the entire current year. The previous version of the forecast predicted that the United States economy would grow by 1.5% in 2025.
Goldman Sachs stated that the probability of a recession scenario in the US economic system in the next 12 months is 35%. The previous estimate provided that the mentioned figure is 20%.
The expectations of the financial institution indicate that the prospects for the United States economy are becoming more gloomy, and the most likely dynamic of the corresponding indicators are not going up. The Goldman Sachs forecast predicts that the main circumstances of reality in the space of the US economic system in the foreseeable future will be low GDP growth and high inflation.
The last time stagflation was observed in the United States was in the late 1970s and early 1980s. At that time, the US central bank, headed by Paul Volcker, decided to sharply raise interest rates. Against this background, a recession scenario was implemented in the space of economic reality. The US financial regulator chose to fight inflation instead of supporting GDP growth.
Goldman Sachs economists are convinced that there will be no repeat of the mentioned experience. Moreover, the financial institution experts expect the central bank of the United States to make three decisions about cutting the benchmark rate in the current year. The previous forecast stipulated that the Fed would make two mentioned decisions in 2025.
Goldman Sachs economists expect decisions on cutting the benchmark rate to be made in July, September, and November. The bank left its terminal rate forecast unchanged at 3.5%-3.75%. In this case, it means the fed funds rate is down from 4.25% to 4.50% today.
It is worth noting separately that there is currently no definitive understanding of the final configuration of Washington’s tariff policy. Last weekend, the media released insider information according to which Donald Trump is pushing his team to take more aggressive measures to tighten the United States trade policy. In this case, it implies 20% tariffs on goods shipped to the US by trading partners.
Peter Navarro, White House senior advisor for trade and manufacturing, said last weekend that he expects Donald Trump’s tariffs to rise by $600 billion a year.
Goldman Sachs also drew attention to the fact that the United States is currently experiencing a sharp deterioration in household and business confidence. Moreover, statements by White House officials were noted, signaling their readiness for short-term economic weakness to achieve the long-term goals of the current Washington trade policy concept.
In recent months, there has been a drop in consumer sentiment in the United States. This is evidenced by the results of a survey conducted by the University of Michigan. Currently, the percentage of United States residents expecting an increase in the unemployment rate is the highest since the Great Recession. At the same time, inflation expectations in the US reached a 32-year high.
It is also worth noting that in a separate note, Goldman Sachs economists led by Sven Jari Stehn said that lower forecasts for GDP growth in the European Union reinforce expectations that the European Central Bank will decide to lower borrowing costs three times. These decisions are expected in April, June, and July.
