Goldman Sachs has issued a stark warning about the economic fallout from President Donald Trump’s latest round of tariffs. The investment bank expects the new trade policies to fuel inflation, slow GDP growth, and increase unemployment—potentially leading the U.S. economy toward stagflation in 2025.
With tariff rates expected to jump 15 percentage points, Goldman Sachs sees a severe impact on economic growth, reducing the GDP forecast to just 1% for the year. The firm also projects unemployment to rise to 4.5%, reflecting a weakening labor market. The latest Goldman Sachs US Economy Outlook raises significant concerns about the future trajectory of the economy.
New Tariffs Could Push US Inflation to 3.5% in 2025 – Goldman Sachs Report
One of the biggest concerns highlighted in the Goldman Sachs Tariff Forecast is the US Inflation 2025 Prediction. The firm now expects inflation to hit 3.5%, well above the Federal Reserve’s 2% goal. The primary driver? Rising tariffs on imports, which increase costs for businesses and consumers alike.
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If inflation continues its upward trend, the Federal Reserve Rate Cuts 2025 strategy may come into play. Goldman Sachs now forecasts that the Fed will cut interest rates three times this year—in July, September, and November—to counteract slowing growth. However, these rate cuts may not be enough to prevent economic stagnation.
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US Heading Towards Stagflation? Goldman Sachs Sounds the Alarm
The latest Goldman Sachs US Economy Outlook suggests that the U.S. could be heading into a period of stagflation—a rare economic scenario characterized by high inflation and slow growth. The last time the U.S. faced stagflation was in the late 1970s and early 1980s, when the Federal Reserve had to implement aggressive interest rate hikes to curb rising prices.
Goldman Sachs’ economic team, led by Jan Hatzius, warns that Trump Tariffs 2025 Impact could create similar conditions, putting policymakers in a tough position—either raising interest rates to fight inflation or cutting them to support growth.
Stock Market Reaction to Tariffs & Investment Risks
The stock market is already reacting to the Trade War Impact on US Economy. Investors are closely watching for potential downturns in trade-sensitive sectors such as:
- Manufacturing: Higher import costs could lead to decreased production.
- Retail: Increased prices on consumer goods may lower demand.
- Tech: Semiconductor and electronics industries could face supply chain disruptions.
On the flip side, some investment opportunities could arise:
- Commodities like gold and silver could see a surge as investors seek safe-haven assets.
- Bond markets may benefit from lower interest rates as the Federal Reserve Rate Cuts 2025 take effect.
- Domestic manufacturing stocks could see gains if U.S. companies shift production away from tariff-hit regions.
Recession Watch: Goldman Sachs Expects Aggressive Trade Policies to Hurt Economy
Goldman Sachs now places the recession risk at 35%, up from 20% in the previous outlook. While some analysts believe the Fed’s rate cuts could soften the impact, others warn that Trump’s trade policies might push the economy into a downturn regardless.
With Trade War Impact on US Economy becoming more pronounced, businesses and consumers alike should prepare for economic uncertainty. For investors, this means diversifying portfolios, keeping an eye on Stock Market Reaction to Tariffs, and staying informed about key economic indicators.
