Goldman Sachs Warns of Slower U.S. Growth Due to Weakened Consumption from Tariff Impact

"Even One-Off Price Hikes Will Erode Real Incomes"
U.S. Average Tariff Rate Forecast Raised from 10% to 15%

Global investment bank Goldman Sachs has warned that the U.S. economy will slow down due to weakened consumer spending caused by the impact of tariffs.

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According to CNBC on July 22 (local time), Jan Hatzius, chief economist at Goldman Sachs, stated in a recent memo to clients that "price increases related to tariffs are gradually eroding real incomes, which will offset the economic stimulus effect from easier financial conditions." He projected the U.S. growth rate for this year at 1.1%. He further explained, "Even one-off price hikes will erode real incomes," and analyzed that "this phenomenon is occurring at a time when the trend in consumer spending already appears unstable."

He noted that, in contrast to the recent strong retail sales figures, overall consumption likely stagnated during the first half of this year, adding, "This is a rare occurrence outside of recession periods." He also raised his forecast for the average U.S. tariff rate under the Donald Trump administration's tariff policy from the previous 10% to 15%.

He further projected that the average tariff rate would rise by an additional 3 percentage points in 2026. Due to this impact, he forecast that the Personal Consumption Expenditures (PCE) price index, which the Federal Reserve uses as a benchmark for monetary policy, would rise to 3.3% this year. In addition, he assessed the probability of the U.S. economy falling into a recession at around 30%.

This pessimistic economic outlook from Goldman Sachs comes at a time when expectations that the U.S. will maintain solid growth despite its tariff policies have been gaining traction. The Wall Street Journal (WSJ) recently reported that, contrary to initial concerns that tariffs would trigger stagflation (rising prices during an economic downturn), there has been no sharp surge in prices, and the U.S. economy is regaining momentum.

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