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A recession is now 35% possible in 2025, the investment banking firm said in an economics research report published on Sunday, March 30. That's a dramatic increase from Goldman Sachs' 20% prediction made earlier in March.
The increased odds come as Trump prepares to roll out sweeping new tariffs on Wednesday, April 2, which the President has dubbed "liberation day."
"The upgrade from our previous 20% estimate reflects our lower growth baseline, the sharp recent deterioration in household and business confidence, and statements from White House officials indicating greater willingness to tolerate near-term economic weakness in pursuit of their policies," Goldman Sachs said in its report.
While product and country exclusions may soften the blow, Goldman still expects the average US tariff rate to rise 9 percentage points — the largest increase in recent memory.
"Most importantly, real income growth has already slowed sharply and we expect it to average only 1.4% this year," the bank said.
Goldman also slashed its 2025 gross domestic product forecast to 1.0% – down from 1.5% – and raised its unemployment projection to 4.5%. First-quarter growth estimates have plunged to just 0.2%, while the firm raised its inflation outlook to 3.5% as tariffs are expected to drive up consumer prices.
The new forecast comes amid mounting signs that Americans are bracing for economic trouble. Consumer confidence has fallen for three straight months, hitting its lowest level in 12 years, according to The Conference Board.
In a March survey by the University of Michigan, two-thirds of Americans said they expect unemployment to rise over the next year — the highest level of job market pessimism since 2009.
"Overall, consumers perceive a tremendous amount of uncertainty in the economy — policy uncertainty, market uncertainty, general economic uncertainty, among others," said Joanne Hsu, director of the college's Surveys of Consumers.
Trump's constantly changing tariff threats have weighed heavily on households and businesses.
In March, 44% of Michigan's survey respondents spontaneously mentioned tariffs during interviews, up from 40% in February. Many said they expect prices to rise — especially for gas, groceries, and autos.
On his so-called "liberation day," Trump's 25% tariffs on all foreign-made cars will also take effect, following a chaotic stretch of trade escalations targeting Canada, Mexico, China, and the European Union. He has also hinted at future tariffs on lumber and pharmaceutical imports.
The auto tariffs come as cross-border travel between the US and Canada has collapsed. Flights between the two countries have dropped more than 70 percent compared to 2024 and summer airline capacity has been slashed, according to aviation data firm OAG.
Along with the trade war, Trump has repeatedly taunted Canada, saying it should become the "51st state." Trump also mocked former Canadian Prime Minister Justin Trudeau by calling him a "governor."
Domestically, fears are spreading across income levels.
Only 26 percent of high-income consumers now expect to be better off financially over the next year, down from 42 percent in Michigan's survey from August 2024. Stock market expectations have also collapsed to their lowest level since March 2023.
In response to growing risks, Goldman Sachs now expects the Fed to cut rates three times in 2025 — starting in July — to cushion the blow on a possible unemployment rise. The firm said the most likely scenario is a package of "insurance" cuts similar to those in 2019.
While the Fed has downplayed inflation expectations, Goldman said rising unemployment could soon become the main trigger for action.
The White House said Trump's "liberation day" tariffs will be announced in the Rose Garden at 4 p.m. on April 2.
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