Goldman Slashes Yield Forecast Ahead of Tariff Fallout

​Goldman Sachs Just Hit the Panic Button on Yields
Forget waiting on Trump’s next Rose Garden speech—Goldman Sachs isn’t wasting any time. The investment giant has slashed its expectations for Treasury yields in 2025, and it’s all thanks to one thing: tariffs. The bank now expects the 10-year yield to finish the year at 4%, down from its previous guess of 4.35%. The 2-year yield outlook got cut too, from 3.95% to a flatter 3.3%.

The reasoning? Goldman’s strategists, led by George Cole, are baking in what they call a “more severe tariff baseline”—a fancy way of saying they think Trump’s trade plans are going to hit hard and fast. They’re anticipating a 15-point jump in effective tariffs, which would usually mean inflation. Indeed, they see the core PCE (Personal Consumption Expenditures) index reaching 3.5% on a year-over-year basis.

A Fed Pivot in the Cards?
But here's the twist: while higher tariffs generally mean hotter inflation, Goldman is betting that the overall economy will cool enough to convince the Federal Reserve to step in. They’re forecasting three consecutive quarter-point rate cuts starting in July. That’s a big pivot from where the market was not too long ago, when “higher for longer” was the Fed’s unofficial motto.

This cocktail of rising inflation and a slowing economy has “stagflation” written all over it, and Goldman’s not alone in sounding the alarm. Earlier this week, the firm also cut its stock market forecast, citing increased recession risks.

The Delicate Dance Ahead
What Goldman’s really pointing to is a balancing act between not falling into a recession and not ignoring the inflation alarm bells. Their yield targets suggest we might dodge a deep downturn—but just barely. Don’t be surprised if yields dip a bit further along the way, they say.

It’s clear the markets are moving into murky waters. And Goldman, always eager to be early rather than late, is repositioning fast—because in this kind of economy, waiting around could mean missing the next big move.