As President Donald Trump prepares to announce a new round of tariffs, the economic landscape is bracing for significant shifts. A recent report from Goldman Sachs outlines the potential repercussions of these tariffs, forecasting an alarming combination of rising inflation, increasing unemployment, and stagnant economic growth. The implications of these tariffs are profound, not just for the U.S. economy but for global markets as well.
Goldman Sachs anticipates that tariff rates could increase by as much as 15 percentage points, a scenario that now appears more likely as the decision day approaches. This increase, although expected to be moderated by eventual product and country exclusions, signals a tough road ahead for consumers and businesses alike. A projected inflation rate of 3.5% by 2025, significantly above the Federal Reserve’s target of 2%, could erode purchasing power and squeeze household budgets.
The forecasted economic growth of just 0.2% in the first quarter and a meager 1% for the full year is troubling. Such low growth rates, combined with an expected unemployment rate of 4.5%, paint a picture of an economy struggling to gain momentum. The increased likelihood of a recession—now pegged at 35%—raises concerns reminiscent of the stagflation experienced in the late 1970s and early 1980s, when high inflation coexisted with stagnant economic growth.
Goldman's insights indicate that this time, the Federal Reserve may take a different approach. While past economic crises have led to aggressive interest rate hikes, Goldman now forecasts three rate cuts within 2025. This shift suggests that the Fed is prepared to prioritize economic support over inflation containment. However, the effectiveness of such rate cuts in combating inflation without further destabilizing the economy remains uncertain.
The potential for an across-the-board tariff increase of 20% on U.S. trading partners would exacerbate these challenges, leading to increased costs for consumers and businesses, reduced international trade, and a further slowdown in economic growth. The ripple effects of these tariffs could extend beyond U.S. borders, affecting global supply chains and economic stability worldwide.
In summary, as decision day approaches, the proposed tariffs represent more than just a trade policy shift; they embody a critical juncture for the U.S. economy. The interplay of rising inflation, stagnant growth, and potential recessionary pressures could create a challenging environment for policymakers and consumers alike. The coming weeks will be crucial in determining how these economic forecasts play out and what measures will be taken to mitigate their impact.
Article Link: https://www.cnbc.com/2025/03/30/tariffs-to-spike-inflation-stunt-growth-and-raise-recession-risks-goldman-says-.html