May 13, 2025 (Investing.com) –
Investing.com - Goldman Sachs has said it now sees a 35% chance of the U.S. entering a recession, down from a prior estimate of 45%, following an agreement between the U.S. and China that sparked hopes for an easing in recently intensifying trade tensions.
In a note to clients, the brokerage also lifted its projection for U.S. gross domestic product growth this year by 0.5 percentage points to 1%.
On Monday, Washington and Beijing announced that they had reached an agreement that would slash their sky-high respective tariffs on each other and pause the levies for 90 days. U.S. tariffs on China were slashed to 30% and Beijing’s levies were decreased to 10%, with both sides saying that they will engage in more trade discussions in the future.
The moves come after U.S. President Donald Trump slapped soaring duties of at least 145% on China, leading Beijing to respond with its own retaliatory tariffs of 125%.
Many brokerages responded to the escalating trade spat by increasing their predictions for a potential U.S. recession, reflecting warnings from economists that the tariffs would drive up inflationary pressures and weigh on the wider economy.
Buoyed by rising optimism that the tariffs may be less punishing than initially feared, the Goldman Sachs analysts said they now expect the Federal Reserve to slash interest rates three times in 2025 and 2026. The first reduction is tipped to come in December, later than an earlier forecast of July, while the other two are seen in March and June next year.
"Under our new economic baseline, the rationale for rate cuts shifts from insurance to normalization as growth remains somewhat firmer, the unemployment rate rises by somewhat less, and the urgency for policy support is reduced," the analysts wrote.
Goldman peer Citigroup (NYSE:C) has also postponed its outlook for an upcoming Fed rate drawdown to July from June.
Meanwhile, Goldman estimates that the benchmark S&P 500 will end the current year at 6,100, up from a previous projection of 5,900. The average ended on Monday at 5,844.19.
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