The recent Goldman Sachs report highlights the economic risks posed by President Trump's aggressive tariff policies. The investment bank expects tariffs to raise inflation, unemployment, and recession risks in the coming year. Specifically, Goldman projects inflation to reach 3.5% in 2025, exceeding the Federal Reserve’s 2% target. Economic growth is forecasted to slow dramatically, with just 0.2% growth in the first quarter and 1% for the year. Unemployment is expected to rise to 4.5%, and the chances of a recession are now estimated at 35%, up from 20% previously. These predictions suggest a risk of stagflation, a dangerous mix of low growth and high inflation not seen since the late 1970s.
To counter the economic slowdown, Goldman Sachs now expects the Federal Reserve to cut interest rates three times in 2025, compared to two cuts previously forecasted. The cuts are projected for July, September, and November, each by a quarter percentage point, reducing the terminal rate to 3.5%-3.75%. This policy shift aims to cushion the economy against rising costs from tariffs, which could increase prices by up to 20% on imports from U.S. trading partners. The aggressive tariffs may create challenges for businesses and consumers, highlighting the complex impact of trade policies on economic stability.
2 comments:
I wonder how the U.S. government can justify aggressive tariff policies when they risk triggering stagflation and harming both consumers and businesses.
It will be very interesting to see how the three cuts will differentiate from the original forecasted two cuts. Tariffs seem to be bringing baggage with them into every single economic category. I feel as if stagflation is the absolute last thing the economy needs with the current administration.
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