In a weekly note released Sunday, “US Economics Analyst: A Further Increase in Our Tariff Assumptions” (Walker / Phillips / Mericle) — Goldman Sachs revised its 12-month U.S. recession probability from 20% to 35%. The update reflects a shift in baseline assumptions around trade, inflation, and growth as the economic environment becomes more policy-driven and less predictable.

Goldman now assumes average U.S. tariffs will hit 15% in 2025, citing more aggressive trade stances under the Trump administration. Core inflation is expected to end the year at 3.5%, GDP growth is forecast at 1.0%, and the unemployment rate is projected to rise to 4.5%. Real income growth is already trending at just 1.4%. None of these numbers suggest a crash — but together, they point to a slower, stickier cycle.

A few hours later, Goldman’s equity team released a companion note — “US Equity Views: Higher tariffs and weaker growth reduce our earnings estimates and S&P 500 return forecasts”. In it, they cut their 3-month and 12-month S&P 500 return expectations to –5% and +6%, down from 0% and +16%. The implied year-end S&P level? Around 5900.

Earnings forecasts were lowered too. Goldman now sees S&P 500 EPS growing just +3% in 2025 (down from +7%) with a new EPS target of $253. For 2026, they’ve revised slightly down to $269 (+6%). Those numbers sit below both strategist and analyst consensus — a sign that downside risk is being built into the model in a more intentional way.

Meanwhile, markets are already cooling. The S&P 500 and Nasdaq have ended in the red for five of the last six weeks. It’s not a selloff, but it’s definitely not momentum either.

Compared to the Biden Years, This Is a Different Tone

Goldman cut recession odds to 15% under Biden in 2023, citing strong labor and inflation trends. By 2025, under Trump, they’ve raised it back to 35% amid rising tariffs and weaker growth.

Under the Biden administration, Goldman’s research leaned more optimistic, even through inflation and Fed tightening. Labor strength and consumer spending kept things afloat, and most forecasts assumed any volatility could be absorbed.

Now? The mood’s changed. It’s more cautious, more reactive to policy. There’s still no outright recession call, but the floor is lower and the runway shorter. The forecast shift from 20% to 35% isn’t dramatic, but it’s meaningful. It tells us this slowdown is no longer seen as hypothetical.

Earnings growth is slowing, tariffs are creating drag. And expectations are adjusting across the board. The soft landing might still happen, but the path to get there looks a hell of a lot less smooth than it did a few months ago.