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Economics

Tariffs to spike inflation, stunt growth and raise recession risks, Goldman says

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U.S. President Donald Trump announces that his administration has reached a deal with elite law firm Skadden, Arps, Slate, Meagher & Flom during a swearing-in ceremony in the Oval Office at the White House on March 28, 2025 in Washington, DC. 

Andrew Harnik | Getty Images

With decision day looming this week for President Donald Trump’s latest round of tariffs, Goldman Sachs expects aggressive duties from the White House to raise inflation and unemployment and drag economic growth to a near-standstill.

The investment bank now expects that tariff rates will jump 15 percentage points, its previous “risk-case” scenario that now appears more likely when Trump announces reciprocal tariffs on Wednesday. However, Goldman did note that product and country exclusions eventually will pull that increase down to 9 percentage points.

When the new trade moves are enacted, the Goldman economic team led by head of global investment research Jan Hatzius sees a broad, negative impact on the economy.

In a note published on Sunday, the firm said “we continue to believe the risk from April 2 tariffs is greater than many market participants have previously assumed.”

Inflation above goal

On inflation, the firm sees its preferred core measure, excluding food and energy prices, to hit 3.5% in 2025, a 0.5 percentage point increase from the prior forecast and well above the Federal Reserve’s 2% goal.

That in turn will come with weak economic growth: Just a 0.2% annualized growth rate in the first quarter and 1% for the full year when measured from the fourth quarter of 2024 to Q4 of 2025, down 0.5 percentage point from the prior forecast. In addition, the Wall Street firm now sees unemployment hitting 4.5%, a 0.3 percentage point raise from the previous forecast.

Taken together, Goldman now expects a 35% chance of recession in the next 12 months, up from 20% in the prior outlook.

The forecast paints a growing chance of a stagflation economy, with low growth and high inflation. The last time the U.S. saw stagflation was in the late 1970s and early ’80s. Back then, the Paul Volcker-led Fed dramatically raised interest rates, sending the economy into recession as the central bank chose fighting inflation over supporting economic growth.

Three rate cuts

Goldman’s economists do not see that being the case this time. In fact, the firm now expects the Fed to cut its benchmark rate three times this year, assuming quarter percentage point increments, up from a previous projection of two rate cuts.

“We have pulled the lone 2026 cut in our Fed forecast forward into 2025 and now expect three consecutive cuts this year in July, September, and November, which would leave our terminal rate forecast unchanged at 3.5%-3.75%,” the Goldman economists said, referring to the fed funds rate, down from 4.25% to 4.50% today.

Though the extent of the latest tariffs is still not known, the Wall Street Journal reported Sunday that Trump is pushing his team toward more aggressive levies that could mean an across-the-board hit of 20% to U.S. trading partners.

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Economics

Trump tariffs could cause summer economic slump: Chicago Fed president

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Austan Goolsbee, President and CEO of the Federal Reserve Bank of Chicago, speaks to the Economic Club of New York in New York City, U.S., April 10, 2025. 

Brendan McDermid | Reuters

Business owners and CEOs are already stocking up on inventory, and some American shoppers are panic buying big-ticket items in anticipation of President Donald Trump’s tariffs. The sudden buying binge could cause an “artificially high” level of economic activity, said Federal Reserve Bank of Chicago President Austan Goolsbee.

“That kind of preemptive purchasing is probably even more pronounced on the business side,” Goolsbee told CBS’ “Face The Nation” on Sunday, adding: “We heard a lot about preemptive building-up of inventories that could last 60 days, 90 days, if there [was] going to be more uncertainty.”

Businesses stockpiling inventory and consumers accelerating their purchasing decisions — buying an Apple iPhone now, say, rather than waiting until the fall — may inflate U.S. economic activity in April and lead to a slowdown in the coming months, Goolsbee suggested.

“Activity might look artificially high in the initial, and then by the summer, might fall off — because people have bought it all,” he said.

Sectors affected by Trump’s tariffs, particularly the auto industry, are most likely to heavily stock up on inventory now before import levies on goods from other countries potentially rise further, said Goolsbee. Many car parts, electronic components and other big-ticket consumer items are manufactured in China, for example, which currently faces a 145% total tariff rate on goods imported to the United States.

Trump’s tariffs on a bevy of other countries are currently in the middle of a 90-day pause, with a 10% baseline tariff rate instead applying to all imported goods across the board. The pause is due to expire on July 9, with Trump touting a series of rate negotiations with foreign leaders between now and then.

“We don’t know, 90 days from now, when they’ve revisited the tariffs, we don’t know how big they’re going to be,” Goolsbee said.

Some U.S. business owners who buy goods manufactured in China say they already can’t afford to place rush orders on inventory. Matt Rollens, owner and CEO of Granite Bay, California-based novelty drinkware company Dragon Glassware, says he’s temporarily holding his products in China because paying the 145% levy would force him to raise consumer prices by at least 50%, likely drying up customer demand.

Rollens has enough inventory in the U.S. to last roughly until June, and hopes the tariffs will be rolled back by then, he told CNBC Make It on April 11.

Short-term uncertainty and financial pain aside, the Fed’s Goolsbee expressed optimism about the country’s longer-term economic outlook.

“If we can get through this, it’s important to remember: The hard data coming into April was pretty good. The unemployment rate [was] around steady full employment, inflation [was] coming down,” he said. “It’s just a desire of people expressing they don’t want to back to ’21 and ’22, at a time when inflation was really raging out of control.”

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