TLDR
- Goldman Sachs increased its 12-month US recession probability from 20% to 35%
- The bank expects average US tariff rates to rise 15 percentage points in 2025
- Goldman lowered its 2025 US GDP growth forecast to just 1% while raising inflation projections
- Trump is expected to announce across-the-board reciprocal tariffs averaging 15% on April 2
- Bitcoin traded at $83,230 amid concerns about how a recession might impact crypto markets
Goldman Sachs has raised alarm bells about the US economy. The Wall Street bank now sees a 35% chance of recession in the next 12 months. This marks a sharp increase from their previous estimate of 20%.
Goldman raises its 12-month recession probability from 20% to 35%. pic.twitter.com/LToFpq3BtA
— Peter Berezin (@PeterBerezinBCA) March 30, 2025
The warning comes as President Trump prepares to escalate his trade war policies. Goldman economists cite rising tariffs, weakening growth, and poor consumer sentiment as key factors. This is Goldman’s highest recession probability since the regional banking crisis two years ago.
The bank has downgraded its 2025 US GDP growth forecast to just 1%. This represents a 0.5 percentage point reduction from their previous outlook. They also raised their year-end core inflation forecast to 3.5%.
Tariff Expectations
Goldman now expects the average US tariff rate to rise by 15 percentage points in 2025. This marks the second upward revision to their tariff estimates in March alone. Their previous projection was 10 percentage points.
President Trump is expected to announce across-the-board reciprocal tariffs averaging 15% on April 2. After accounting for product and country exclusions, the effective rise might be around 9 percentage points. The announcement date is just days away.
Trump dismissed reports that tariffs would initially target just a select group of countries.
“You’d start with all countries, so let’s see what happens,” Trump said Sunday.
This contradicts earlier suggestions about starting with the “Dirty 15” countries that have the largest trade imbalances with the US.
White House senior counselor Peter Navarro told Fox News that Trump’s tariffs could raise as much as $600 billion a year. Critics view this as a tax increase that will raise costs for millions of Americans. The policy shift appears designed for long-term goals despite short-term economic pain.
Employment and Inflation Outlook
Goldman has increased its unemployment projection to 4.5% by year end. This represents a 0.3 percentage point bump from their previous forecast. Consumer confidence surveys already show Americans expecting unemployment to rise.
The University of Michigan’s consumer sentiment survey revealed the highest percentage of Americans expecting unemployment to rise since the Great Recession. The same survey showed inflation expectations hitting 32-year highs. These data points suggest consumer anxiety is growing.
Goldman economists noted they are “less dismissive of the recent decline because economic fundamentals are not as strong as in prior years.” Most concerning is that real income growth has slowed sharply. The bank expects it to average only 1.4% this year.
Higher tariffs will likely boost consumer prices according to Goldman’s analysis. These price increases will eat into inflation-adjusted income. This creates a challenging economic environment for households already stretched thin.
Impact on Monetary Policy
The Federal Reserve faces a complex policy situation. Goldman now expects the Fed to cut rates three times this year. This is up from their previous projection of two cuts.
However, some analysts warn the Fed may be constrained in its response. The combination of slowing growth with persistent inflation creates a policy dilemma. Central banks typically hesitate to add stimulus when inflation remains above target.
The yield curve is inverting again, which has been a classic recession signal. Unlike past cycles, the Fed may not rush to quantitative easing due to inflation concerns. This creates a challenging environment for financial markets and the broader economy.
Core inflation accelerated to 2.8% in February according to the Fed’s preferred inflation measure. Goldman’s projected year-end rate of 3.5% would remain well above the Fed’s 2% target. This limits the central bank’s ability to provide aggressive stimulus.
Cryptocurrency Market Implications
Bitcoin and other cryptocurrencies have become increasingly responsive to broader macro conditions. The traditional view that digital assets are uncorrelated to macroeconomic variables has evolved. Bitcoin now shows sensitivity to liquidity, risk sentiment, and real yields.
Some analysts suggest a recession poses risks for cryptocurrency markets. Bitcoin might face “risk-off pressure without the stimulus relief that typically follows.” This view sees crypto as vulnerable to economic downturns without the benefit of immediate policy support.
Others offer a more nuanced perspective on Bitcoin’s relationship with recessions. Robbie Mitchnick, Global Head of Digital Assets at BlackRock, suggested a recession “would be a big catalyst for Bitcoin.” He argues that the policy responses to recessions—more fiscal spending, debt accumulation, and monetary stimulus—benefit Bitcoin in the long run.
Mitchnick acknowledges short-term constraints like reduced disposable income and correlations with equities. However, he maintains that structurally, Bitcoin benefits from the consequences of recessionary policy responses. He describes Bitcoin as “long liquidity in the system” and potentially a hedge against “general social disorder.”
At the time of reporting, Bitcoin traded at $83,230. Crypto markets edged lower following Goldman’s warning. The market reaction suggests investors are weighing potential recession impacts on digital assets.
Bitcoin now often behaves like “a high-beta play on the NASDAQ 100,” according to some analysts. This means it tends to move in the same direction as tech stocks but with greater magnitude. This relationship makes cryptocurrency markets more vulnerable to traditional economic forces than in the past.
Mitchnick suggests the market reaction may not reflect Bitcoin’s true positioning. He notes that “the market has almost, it seems, gotten this in some ways not particularly well calibrated.” This gap creates “opportunity for education in a market and an asset class that’s still very nascent.”
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