Goldman Sachs raised the odds of a U.S. recession to 45% from 35%, the second time it has increased its forecast in a week, amid a growing chorus of such predictions by investment banks due to an escalating trade war.
Since then, at least seven top investment banks have raised their recession risk forecasts, with J.P.Morgan putting the odds of a U.S. and global recession at 60%, on fears that the tariffs will not only ignite U.S. inflation but also spark retaliatory measures from other countries, as China has already announced.
Goldman, on Sunday, lowered its U.S. economic growth outlook for 2025 to 1.3% from 1.5%. That, though, is higher than Wells Fargo Investment Institute's (WFII) 1% growth forecast, while J.P.Morgan estimates a 0.3% contraction, on a quarterly basis.
On the other hand, Morgan Stanley said in a note dated Sunday that while a recession in the U.S. is not in their base case, "it is increasingly a realistic bear case".
SOONER RATE CUTS
Goldman still expects the Federal Reserve to cut interest rates by 25 basis points each in three consecutive meetings. However, it now expects the first of them to come in June, not July.
J.P.Morgan expects a rate cut in each of the Fed meetings in 2025 starting in June, with another cut in January taking the top range of the benchmark policy rate to 3%.
It had previously expected the Fed to lower rates twice this year from its current policy rate of 4.25% to 4.50%.
WFII now expects three rate cuts this year, instead of one.
Traders, on average, expect 116 basis points of rate cuts this year, implying a rate cut in at least four of the remaining five meetings, according to data compiled by LSEG.
