Synopsis:

Goldman Sachs anticipates that President Trump will announce a sweeping 15% reciprocal tariff on April 2nd, significantly escalating trade tensions. In response to increased economic uncertainty and downside risks, they now forecast three Fed rate cuts starting in July.

Key Points:

• Tariffs: Goldman expects Trump to unveil a 15% average reciprocal tariff, raising the effective tariff rate by 9 percentage points after exemptions. This would bring the total tariff increase to 15pp when including earlier and anticipated sector-specific measures.

• Fed Cuts: Due to rising trade-related uncertainty and potential softening in labor markets, Goldman forecasts three consecutive Fed cuts in July, September, and October, amounting to “insurance” easing.

• Despite elevated inflation and inflation expectations, Goldman believes a rise in unemployment would provide the necessary justification for rate cuts.

• The new terminal rate target is set at 3.5–3.75%.

Conclusion:

Goldman Sachs sees a potent mix of trade protectionism and economic fragility ahead. While the Fed is expected to respond with precautionary easing, the higher bar for cuts due to sticky inflation suggests any monetary support will be cautious and reactive. Markets should brace for a more volatile macro backdrop into Q3.