Goldman Sachs Predicts Significant Economic Impact from Tariffs

In a recent client letter, Goldman Sachs' Chief Economist Jan Hatzius highlighted the potential for President Donald Trump's tariff policies to significantly affect the U.S. economy. The investment bank forecasts that reciprocal tariffs could reach an effective rate of 15%, pushing the Fed's preferred Personal Consumption Expenditures (PCE) Price Index up to 3.3% in 2025.

Long-term Inflation and Economic Growth Outlook

Despite the near-term spike, the PCE inflation is expected to adjust downward to 2.7% in 2026 and further to 2.4% by 2027. However, the broader economic implications are concerning. Goldman Sachs projects a sluggish annual growth rate of just 1.1% for the U.S. economy in 2025, with real incomes likely to decline due to tariff-induced price increases.