Goldman Sachs Raises Recession Odds To 25%, Warns U.S. Economy Is Slipping As Jobs Slow

Key Takeaways

• Recession odds rise to 25% after weak February jobs.
• Oil price shock could push inflation near 4.5% this spring.
• Trump tariffs add 70 basis points to core inflation.
• Fed rate cuts postponed to September and December 2026.
• Q2‑Q4 growth projected around 2%, slowing sharply.

Summary

Goldman Sachs lifted its 12‑month recession probability to 25%, up five points after February’s disappointing jobs report and rising oil prices. The bank highlighted a 92,000‑job loss, unemployment climbing to 4.44% and a projected 4.6% rate by Q3, signaling a weakening labor market. Geopolitical tension from the Iran war could push Brent crude to $110, potentially driving headline inflation toward 4.5% this spring, while Trump’s tariffs are estimated to add 70 basis points to core inflation. Consequently, the Fed’s anticipated rate cuts have been pushed back to September and December 2026.

Pulse Analysis

Goldman Sachs’ latest outlook underscores a fragile macro environment where labor market softness collides with external shocks. The February payroll decline, the first job loss in months, nudged unemployment higher and eroded the buffer needed to sustain steady hiring. Coupled with a revised labor‑force participation rate, these trends suggest demand is waning, prompting Goldman to raise recession odds. For investors, the signal warns that earnings growth may stall, and credit conditions could tighten as firms brace for lower consumer spending.

Oil price volatility adds a new layer of uncertainty. The conflict in the Strait of Hormuz threatens to spike Brent crude to $110 a barrel, a scenario that could lift headline PCE inflation to roughly 4.5% in the spring. Even under baseline assumptions, Goldman lifted its year‑end inflation forecast by 0.8 percentage points. Higher energy costs reverberate through transportation, manufacturing, and household budgets, amplifying the Fed’s dilemma between curbing inflation and supporting a deteriorating job market.

Policy responses are equally constrained. Goldman attributes more than 70 basis points of current core inflation to Trump‑era tariffs, indicating that trade policy is an active inflation driver. With core CPI and core PCE expected to hover near 1.75% and 2.25% respectively after tariff adjustments, the Federal Reserve’s path to rate cuts has been delayed to September and December 2026. Meanwhile, GDP growth is projected to decelerate from a 3.3% first‑quarter pace to around 2% for the remainder of the year, signaling a glide toward stagnation. Market participants should monitor productivity trends and shelter cost dynamics, which could provide modest relief amid broader headwinds.