• Goldman Sachs raises core PCE inflation forecast to 3.5% for 2025, citing tariff impacts.
  • The bank slashes GDP growth projections to 0.5% and increases recession probability to 45%.
  • Three Fed rate cuts now expected as countermeasure against economic slowdown.

Tariffs Reshape Economic Outlook

Goldman Sachs has significantly revised its 2025 economic forecasts, painting a bleaker picture than previously anticipated. The investment bank now projects core PCE inflation will reach 3.5% by year-end, up from prior estimates, with tariff increases identified as a primary driver of persistent price pressures.

"What began as temporary inflation concerns are now showing signs of becoming more entrenched," said a senior economist familiar with the matter, speaking on condition of anonymity. The bank's research team identified multiple transmission channels where tariffs affect the economy, including reduced real incomes and tightening financial conditions.

Growth Projections Slashed

In a striking downward revision, Goldman now expects just 0.5% real GDP growth for 2025 (Q4/Q4), while simultaneously increasing its 12-month recession probability to 45%. The US dollar has already shown weakness in Q1 2025, a trend analysts expect to continue amid deteriorating business confidence.

Federal Reserve Chairman Jerome Powell recently acknowledged that tariff effects "could be more persistent" than initially thought. In response, Goldman anticipates three 25-basis point rate cuts in July, September, and November as insurance against a potential labor market downturn.

Global Ripple Effects

The bank's revised outlook extends beyond US borders, with Euro area GDP growth forecasts trimmed to 0.7% and core inflation projections reduced to 1.9%. One potential bright spot comes from China's economic stimulus, which may partially offset tariff impacts according to analysts.

Attempts to reach Goldman Sachs spokespeople for additional comment were unsuccessful. Market watchers will be closely monitoring upcoming economic data releases for signs confirming these revised projections.