Trump tariffs expected to weigh heavily on economy, spur Fed into further action
The Federal Reserve will now cut interest rates three times in 2025 with chances of a US recession rising to 35%, according to Goldman Sachs.
While the so-called “dot plot” from the Fed’s last rate decision indicated it was anticipating two cuts this year, Goldman economists said President Trump’s impending wave of tariffs threaten to weigh against economic growth and pose upside risk to unemployment.
Analysts now expect the Fed to cut in July, September, and November amid the looming threat of a trade war, with Wednesday marking the date of Trump’s so-called “Liberation Day” for the US – which will see so-called “retaliatory” tariffs come into effect against countries including Canada and European Union nations.
Goldman’s call is its highest expectation for a recession since the regional banking crisis triggered by the collapse of Silicon Valley Bank and Signature Bank in 2023, and is sparked by what it describes as 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 these policies.”
President Trump's latest tariffs on automaker imports have sparked unease in Detroit's mortgage market. Samantha Shelton of Align Lending highlighted growing borrower concerns about economic impact and homebuying costhttps://t.co/lCuew3WbXS
— Mortgage Professional America Magazine (@MPAMagazineUS) March 27, 2025
It expects inflation to jump this year, while end-of-year unemployment is projected to jump by 0.3% to 4.5%.
Last week, Federal Reserve Bank of Boston president Susan Collins said it was “inevitable” tariffs would spike inflation, especially if they remain in place for a prolonged period, but Goldman expects the central bank will push ahead with more rate cuts than originally planned if the economy takes a hit as projected.
US consumer confidence has also slid in recent weeks, tumbling to its lowest level for over two years and diving by 28% compared with the same time last year, according to a new poll by the University of Michigan.
While the extent of Trump’s tariffs has yet to be revealed, Goldman said it anticipated reciprocal tariffs on the EU worth 15 percentage points – and for core inflation to rise to 2.1% if the EU retaliates as expected.
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