Goldman Sachs now expects the average US tariff rate to rise by 15 percentage points in 2025, significantly higher than its previous baseline assumption.
“We now expect the average US tariff rate to rise 15pp in 2025—our previous “risk case” and 5pp more than our previous baseline. Almost the entire revision reflects a more aggressive assumption for “reciprocal” tariffs. We expect President Trump to announce reciprocal tariffs that average 15% across all US trading partners on April 2, although we expect product and country exclusions to ultimately whittle the addition to the average US tariff rate down to 9pp,” the report noted.
Goldman Sach’s inflation, GDP and unemployment rate forecast
Consequently, Goldman Sachs has raised its year-end 2025 core PCE inflation forecast by 0.5pp to 3.5%.
In line with the revised tariff outlook and a lower GDP growth estimate for Q1 2025, Goldman Sachs has downgraded its US GDP growth forecast to just 1% on a Q4/Q4 basis and 1.5% on an annual average basis.
The weaker growth forecast has led to a 0.3pp increase in the unemployment rate projection for the end of 2025, now expected to be 4.5%.
S&P 500 return expectations
As a result of the heightened tariff concerns and deteriorating economic fundamentals, including slower real income growth, Goldman Sachs has revised its S&P 500 return expectations in a separate note.
The 3-month return forecast has been cut to -5%, while the 12-month return is now projected at +6%, down from a previous forecast of +16%.
Consequently, S&P 500 earnings growth estimates for 2025 have also been reduced from +7% to +3%, with a weaker outlook for the coming years.
Goldman Sachs on US Federal Reserve rate cut
The brokerage estimates the Fed to consecutively cut interest rates in July, September and November, compared with its previous forecast of two cuts in June and December. They noted that “the downside risks to the economy from tariffs have increased the likelihood of a package of 2019-style ‘insurance’ cuts” by the Fed.
More Trump tariffs coming on April 2
President Donald Trump said on Sunday his reciprocal tariffs, to be announced on April 2, would include all countries and not a more limited number, rattling financial markets globally over fears of an economic slowdown. He announced a 25% tariff on imported cars last week. The tariffs, on top of levies on steel and aluminum imports, are designed to bring manufacturing and jobs back to the US.
Impact on Wall Street
US stock futures fell early Monday with futures tied to the Dow Jones Industrial Average dropped by 267 points, or 0.64%. S&P 500 futures and Nasdaq 100 futures tumbled 0.71% and 1.25%, respectively, extending Friday’s rout.
Amidst this, the three major averages are all on pace to end the month lower. The S&P 500 has fallen 6.3% for March, while the Dow Jones Industrial Average is poised for a 5.2% loss. The tech-heavy Nasdaq Composite has declined 8.1%.
