Goldman Sachs Projects Three US Rate Cuts in 2025, Ups Recession Probability to 35%

Goldman Sachs economists raised their forecast for Federal Reserve interest rate cuts to three this year and increased their probability of a U.S. recession to 35%, as President Donald Trump’s tariffs put pressure on economic growth.

“We continue to believe the risk from April 2 tariffs is greater than many market participants have previously assumed,” economists led by Jan Hatzius wrote in note Sunday.

The economists said they see the Federal Reserve reducing rates in July, September and November—up from their previous projection of two cuts this year. They noted that “the downside risks to the economy from tariffs have increased the likelihood of a package of 2019-style ‘insurance’ cuts” by the Fed.

Goldman also increased its 12-month recession probability to 35% from 20%, pointing to “soft data” such as a sharp deterioration in household and business confidence and a slowing in real economic growth.

The investment bank raised its forecast for core PCE inflation this year to 3.5%, reduced its GDP growth projection to 1% on a Q4/Q4 basis and increased its outlook for 2025 U.S. unemployment to 4.5%.

Trump announced a 25% tariff on imported cars last week and is planning another round of tariffs against numerous foreign countries on April 2. The tariffs, on top of levies on steel and aluminum imports, are designed to bring manufacturing and jobs back to the U.S.