Goldman Sachs in the Crosshairs: Inflation, Economic Uncertainty, and Trade Tariffs

Goldman Sachs has captured public scrutiny with its latest inflation forecast, warning that U.S. tariffs will further strain inflation, putting greater burden on consumer prices. While the firm has faced direct social media blows from President Trump, it has not been the only firm facing backlash, since their forecast meets the expected inflation forecast of Wall Street in general.

As economists try to wrestle with the factors of tariff policy, corporate pricing, and central bank monetary policy, current and future U.S. inflation, growth, and consumer spending has morphed into one unpredictable riddle. Domestic economic resilience, international supply chains, and trade policy all contribute into the warning that Goldman Sachs brought into the limelight.

Looking Beyond the Calm of July Inflation Forecasts

Some forecasters expect the July CPI print to be “digestible” at best; calm measures might be hinting at some sort of calm before the storm. Changes to supply chains and currency exchange payments combined with increasing fees due to tariffs have created a perfect storm for some, and many businesses are poised to face the impacts. As a result, the forecasters expect to see a trickle-down effect on the economy till the end of 2025.

Leading economist David Mericle with Goldman Sachs argues that the projection will continue to put pressure on core inflation and cost of goods, and that it will continue to rise with retailers responding to the heightening supply fees. This statement seems to have sparked some political outrage, with Trump openly ridiculing Goldman’s Executives on Truth Social, demanding Mericle be fired or Solomon resign.

Other firms like JPMorgan and UBS are focusing on the same ideology, and this seems to be the new norm with many firms expressing their displeasure on the new tariffs. They seem to all agree that the negative impacts of the new tariffs have barely begun to show.

Wall Street Consensus: The Effects of Tariffs

JPMorgan’s leading U.S. economist, Michael Feroli, noticed right away how severely the new tariffs would impact the economy. His forecast showed the new tariffs might lower GDP by 1% while simultaneously raising inflation by 1% to 1.5%, making the U.S. economy experience the highest inflation in its history. He further described that the impact will “ultimately” come down to how much of the new cost companies will pass to consumers and how much of it they will absorb.

From UBS, Brian Rose pointed out a key recent development in the economy—the decline in core inflation. He remarked how “disinflationary” the economy has been and added that, “Net tariff effects should remain contained, but upward pressure is persistent.” He also added that inflation would likely remain stable for the coming months.

Across Wall Street, everyone seems to agree that inflation will not get out of control. Instead, the expectation is for a “steady” rise. The core inflation rate is projected to stay between approximately 3-5% as the team monitors the results of data gathering in the following months and quarters, making it further away from the Fed’s target.

The Fed’s Rate Reduction Plan

Although there are inflation pressures, some market analysts suspect that the Federal Reserve may begin cutting interest rates, especially with a softer labor market, and if the Fed perceives tariff-induced inflation as mostly fleeting.

As of 2025, policymakers have not changed their stance on rate hikes due to continual tariff inflation and shock inflation. Their reasoning for this decision points to the Fed’s “ride the balancing wire” strategy that strives to keep inflation contained while not excessively weighing on economic activity.

Yet, inflation in the short term, especially with the rising price of gas, will have negative impacts on household spending, and therefore economic growth. As consumers slack on spending, which impacts two-thirds of the US economy, there may be a decline in GDP growth. The new tariffs in place will further constrain economic growth, with an output reduction of 1% that might appear insignificant, but in the current economic climate, this could be devastating.

Sticky inflation coupled with stagnant wages are becoming a growing concern, as well as the tariff expiration date looming.

The removal of the US de minimis $800 threshold on August 29 poses another concern. Goods that cost less than $800 will no longer be exempt from tariffs. As a result, the importation of shipments for consumers will increasingly face tariffs, and longer customs clearance, further driving up the price of goods in the market.

Pantheon Macro and BNP Paribas Forecasts

Pantheon Macro forecasts that core inflation could raise by a full percentage point and reach 3.5% by December 2025. The firm notes that only 25% of the cost increases due to tariffs have been passed on to consumer goods. This suggests that core goods inflation is likely to increase in the coming months.

BNP Paribas echoes the concern, noting that the tariff bite could extend into services, citing some business-facing sector input cost surveys. The bank believes that the demand in a lot of areas considered ‘weak’ or ‘low’ could lead to significant inflation, and that would make the Fed’s job a lot harder when it comes to making sure that inflation is under control.

Core CPI and PCE Insights

The Cleveland Fed’s sticky-price CPI that tracks shelter and eating out, insurance, and some durable goods is currently at 3.8% three-month annualized capturing the highest pace since May 2024. In comparison, the flexible-price CPI that captures energy and groceries is more subdued, showing the lopsided nature of inflation.

Core CPI rose again in July. As companies start to implement surging tariff costs, core PCE inflation will surely exceed the desired rate in the following months as predicted by the Fed. This was emphasized by PNC’s chief economist Gus Faucher.

Walking the Tightrope on Growth and Inflation

There is a delicate balancing act to inflation and economic development. The expectation for the next few months is that cuts to rates will happen, but the persistent inflation rate that is sitting above the 3% mark may slow down the cuts.

The new incoming wave of tariffs are more dangerous to household budgets. This affects spending and investment decisions. Analysts also warn that tariffs along with the rise in the cost of imports and disruptions in the supply chain will have a negative impact on spending and investment.

Sectoral Implications

It is clear that no economy is immune to the impact of tariffs. Consumer electronics, durables, and clothing will face the brunt of inflation and imported goods will rise in cost as well. This rise in cost may enable businesses to pass on some production costs to the consumer.

In the meantime, the service sectors, especially those with tighter labor markets, may face indirect cost pressures as companies try to offset higher input costs. Some service providers may have already started changing their pricing models, which raises the risk of sticky inflation across both services and goods.

Market Reactions and Investor Sentiment

Investors have reacted cautiously, and for a good reason, to Goldman Sachs’ insights and forecasts. After the release of the July CPI print, there were some concerns in the market, but overall, the reaction was nothing short of indifferent. According to some analysts, however, the optimism in the market may have come a bit too early. Increased tariff pressures, mixed with the ever-constant fiscal and trade ambiguity, are bound to change the market’s view of interest rates, equity values, and consumer spending.

Investors are especially concerned with the following indicators:

• Retail price pass-through of tariffs
• Depletion and replenishment of inventories
• Consumer activity and sentiment
• Developments regarding the labor market and wages

All of the above will determine how inflation, and the Federal Reserve’s considerations for policies moving forward, will affect the economy.

Global Trade and Currency Considerations

Costs of imports are associated with currency value and so are foreign exchange tariffs. Businesses are focused on exchange-rate risks, and this coupled with higher tariffs, makes profit margins thinner than ever. Some exporters may pass these costs to consumers, while others absorb them based on competitive pressures and market elasticity.

As a result of FX volatility, economists are faced with the difficulty of trying to predict inflation on the pass-through tariffs and the domestic pricing power with inflation, making the work of predicting inflation much more difficult.

Forecast Outlook

With this information, it demonstrates a longer-lasting inflation with modest designs and thus leads to a prolonged period of inflation, as captured by the combined outlook of Goldman Sachs and the rest of the endorsing economists including JPMorgan, UBS, Pantheon Macro, and BNP Paribas.

As outlined by Goldman, the main indicators are:

• Monthly Core inflation of 0.3%–0.5%
• Core PCE inflation on course above the Fed 2% mark
• Roughly 1% GDP drag from tariffs and reduced consumer spending from mid-tier and lower-tier spenders
• Possible service and durable goods claimed inflation spillover

It is likely that these inflation levels will be captured within the range outlined and thus tapering inflation will be more difficult to manage, leading to reduced spending and likely influencing corporate margins and purchasing power in the long run.

Policy Considerations

Balancing conflicting priorities remains a challenge for policymakers:

• Soothing inflationary pressures while maintaining the consumer’s purchasing power
• Encouraging economic activity without too much tightening or too much loosening of monetary policy
• Observing the effect of trade policy on corporate price control and the supply chain’s flow

Due to imposed tariffs, central banks will have to balance tariff inflation with general economic indicators, alter communication and policy frameworks to balance between market stability and credibility.

Policy Implications

Political and market controversies have sprung from the Goldman Sachs economic outlook, but scarcely contested remains the economic analysis supporting it: The tariff shock is starting to have an impact on consumer prices and is expected to do so until the end of 2025.

Under the Fed’s watch, the mandate is clear: control inflation with minimal impact to growth. The mandate for businesses is to control the supply chain, price, and stock levels to ease the cost burden. To consumers, the burden to be endured will be incremented prices on day-to-day commodities, a shift in spending, and heightened consciousness of trade and socio-economic indicators.

In essence, the Goldman Sachs projection acts as an economic indicator for the rest of the economy, demonstrating the interaction between trade policy, tariffs, inflation, growth, and the state of the economy.

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