Goldman Sachs Exchanges
The recession question
Apr 11, 2025
Join Jan Hatzius, Goldman Sachs' chief economist, and Dominic Wilson, a senior advisor in Global Markets Research, as they delve into the complexities of shifting tariff policies and their ramifications on the economy. They dissect the Federal Reserve's dilemma with inflation and growth, predict recession risks, and analyze volatile markets. The duo also addresses U.S.-China trade tensions and their unexpected impact on the dollar, offering valuable insights for navigating current economic uncertainty.
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Quick takeaways
- Shifting tariff policies are expected to adversely impact global economic growth and elevate inflation, leading to an increased recession probability of around 45% to 50%.
- The complex economic landscape has led to rising treasury yields contrary to traditional expectations, highlighting investor uncertainty amid fluctuating tariff impacts and Fed actions.
Deep dives
Impact of Tariff Policies on U.S. Economic Growth
Recent tariff policy shifts have significantly altered the economic outlook, now projecting tariffs to adversely affect growth rather than being offset by tailwinds. The analysis estimates that a one percentage point increase in the U.S. average tariff rate could lead to both a 10 basis point rise in inflation and a similar reduction in growth. Currently, with tariff rates increasing by 15 to 20 percentage points, the implications suggest low, but still positive growth is anticipated. However, the possibility of a recession remains, with the probability of recession estimated around 45% to 50%, compared to a stronger growth forecast prior to these changes.
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