Goldman Raises Recession Probability to 30% Due to Higher Inflation, Lower GDP Outlook Amid Surging Oil Prices

(SeaPRwire) –   Goldman Sachs is taking a wary stance on the U.S. economy, increasing its inflation outlook and lowering growth projections as oil prices climb due to Strait of Hormuz supply issues. Although the threat of a recession is growing, the general consensus on Wall Street is for a period of slower economic expansion rather than a total downturn.

In its Tuesday economic update, Goldman predicted Brent crude would average $105 in March and $115 in April, before falling to $80 by the end of the year, assuming a six-week disruption. Due to these oil price changes, the bank raised its December 2026 headline PCE inflation target by 0.2 percentage points to 3.1% and trimmed its annual GDP growth forecast to 2.1%. Goldman also increased its recession probability by 5 points to 30%, while clarifying that a recession is not its primary expectation.​

One point of comfort is that Goldman does not expect the energy shock to permanently shift inflation expectations. The bank observed that even significant historical energy crises did not cause lasting changes in how businesses and consumers view price stability, though it noted that post-pandemic inflation mindsets remain a risk factor.​

Diverging views on recession likelihood

Wall Street analysts hold varying opinions, with some providing more severe warnings than Goldman. Bob Michele of JPMorgan suggested the conflict in Iran is more than a temporary inflation hurdle, arguing that price pressures may remain high through the second half of the year. EY-Parthenon estimates the chance of a recession at 40%, pointing to broader impacts on refining and LNG systems. Mark Zandi, Chief Economist at Moody’s Analytics, noted that recession risks were already near 50% before the conflict began.

However, other experts are more optimistic. BNP Paribas contends that the U.S. is well-equipped to manage the shock, noting its position as a top crude producer and net energy exporter—a significant change from the 1970s and 80s. They argue that higher oil costs now redistribute income within the country rather than sending it abroad. Furthermore, the U.S. economy is more energy-efficient today, reducing the inflationary impact of supply disruptions.

The Fed’s cautious approach

The Federal Reserve kept interest rates at 3.5%–3.75% during last week’s meeting, a move Goldman viewed as slightly more hawkish than anticipated. Chair Jerome Powell noted the inflation risks posed by oil but emphasized a balance between price stability and employment, indicating that while rate cuts are possible, they are not immediate. Goldman continues to forecast two 25-basis-point cuts in September and December, targeting a rate of 3–3.25% by year-end, and dismissed market expectations of potential rate hikes.​

The final result depends largely on the length of the Hormuz disruptions. A rapid resolution would allow oil prices to stabilize and limit the impact on growth. Conversely, a long-term conflict would keep energy costs high, reduce consumer spending, and put the Fed in a difficult position. Goldman currently views a severe, long-term disruption as a low-probability “tail risk” rather than a likely forecast.​​

For the time being, the general expectation on Wall Street is for an economy that decelerates but remains resilient—with inflation staying above the Fed’s target and growth falling below potential, as geopolitical events dictate the final outcome.

Generative AI was utilized as a research tool for this report. The details were confirmed by an editor prior to publication.