Goldman Sachs has withdrawn its recession warning after Trump’s surprise 90-day pause on new tariffs. The announcement cooled trade tensions, sparked a market rally, and set the stage for upcoming Fed rate cuts.

Goldman Sachs Backpedals on Recession Outlook

A Sharp Shift From Caution to Modest Optimism

In a major reversal, Goldman Sachs no longer expects a recession in 2025. Hours after issuing a gloomy economic forecast due to fresh tariffs, the firm pulled back its warning following President Trump’s unexpected decision to suspend most new tariffs for 90 days. Goldman now projects 0.5% GDP growth by Q4 2025 and anticipates three rate cuts by the Federal Reserve starting in June.

The dramatic shift followed a turbulent week on Wall Street, with market losses sparking fears of a global downturn. Trump’s announcement, which signaled a more conciliatory approach to trade, gave investors renewed confidence and realigned economic expectations almost instantly.

Markets Surge as Trade Tensions Cool

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Bitcoin, Nasdaq, and Treasuries All React

The market response was swift and emphatic. Bitcoin jumped past $82,000, reflecting investor appetite for alternative assets amid eased trade fears. Meanwhile, the Nasdaq recovered from its worst streak since 2008, nearing a 10% gain. The 10-year Treasury yield also dipped from 4.5% to 4.4%, suggesting improved investor sentiment.

Trump’s tariff pause was linked to ongoing international negotiations over trade and currency policy. According to a post on Truth Social, reciprocal tariff rates were also temporarily reduced to 10%, though tariffs on Chinese goods were sharply increased to 125%, a move likely to remain controversial.

Inflation and Recession Risks Still Linger

Core Inflation Seen Peaking at 3.5%, Recession Odds at 45%

Despite the more upbeat tone, Goldman Sachs cautions that inflation remains elevated. The firm now forecasts core inflation peaking at 3.5% before beginning to ease. While the recession baseline is off the table, analysts still assign a 45% probability to an economic downturn depending on how trade talks evolve and whether global demand stabilizes.

With inflation pressure and volatile investor sentiment still in play, markets will be watching the Fed closely. Rate cuts may offer short-term relief, but long-term stability hinges on concrete outcomes from upcoming trade negotiations.

Treasury Secretary to Lead Trade Talks

Wall Street Sees Bessent’s Appointment as Stabilizing

President Trump named Treasury Secretary Scott Bessent as lead negotiator for upcoming trade talks—a move welcomed by financial markets. Known for his moderate stance, Bessent is seen as a stabilizing force who may help broker deals that avoid escalation and keep economic growth on track.

With the White House dialing back tariff aggression and signaling a shift in tone, hopes are rising for a negotiated outcome. Investors and economists alike will now turn their attention to how Bessent handles the complex global trade landscape in the weeks ahead.

The Road Ahead for Investors and Policymakers

Uncertainty Remains, But Policy Flexibility Offers Hope

While immediate fears have calmed, the global economic outlook remains uncertain. Trump’s move may have bought time, but the pause is temporary. If talks falter or geopolitical tensions flare again, markets could swiftly reverse course.