Banks Reduce U.S. Recession Odds After 90-Day U.S.-China Tariff Truce

Several leading financial institutions—including Goldman Sachs, JP Morgan, and Barclays—have revised down their estimates for a near-term U.S. recession following the announcement of a 90-day tariff truce between the United States and China. The temporary easing of trade tensions has prompted these banks to reassess economic risk profiles, adjust growth forecasts, and push back expectations for Federal Reserve rate cuts.

Revised Recession Probabilities and Growth Outlook

Goldman Sachs made a notable adjustment, cutting its probability of a U.S. recession from 45% to 35%. In the same update, Goldman also increased its forecast for U.S. GDP growth in 2025 to 1%. While JP Morgan and Barclays did not publish the exact percentage changes in the summary provided, both institutions similarly lowered their recession risk assessments in response to the tariff truce. These moves reflect a common view among large banks that reduced trade tensions can support economic activity by lowering uncertainty for businesses and easing pressure on supply chains.

Impact on Federal Reserve Rate-Cut Expectations

Alongside changes to growth and recession probabilities, the trio of banks has revised their outlook for Federal Reserve monetary policy. All three now forecast a single Fed rate cut, pushed out to December 2025, rather than earlier in the year as previously expected. This shift implies that while the immediate recession risk has diminished, the banks still anticipate that the Fed will maintain a restrictive stance through much of 2024 and 2025 to ensure inflation comes down sustainably before easing policy.

Stock Market Implications

Goldman Sachs also adjusted its equity outlook in light of the updated macroeconomic picture, raising its year-end S&P 500 target to 6,100 points. That revised target reflects an expectation for stronger earnings resilience and improved investor sentiment if trade tensions remain contained during the truce period. It is important to note that equity targets are forward-looking assessments based on assumptions about growth, interest rates, and corporate profitability; they are not guaranteed outcomes.

Why a Tariff Truce Matters

A tariff truce between two major economies can have meaningful effects across global trade and finance. Tariffs and related trade barriers increase costs for importers and exporters, create uncertainty for corporate planning, and can slow investment. A 90-day suspension of tariff escalations can reduce those costs and uncertainties temporarily, allowing companies to plan with more confidence, reshore or expand supply chains more predictably, and potentially accelerate hiring or capital spending decisions that were delayed amid trade friction.

What This Means for Businesses and Consumers

For businesses, a reduction in trade tensions can translate into smoother procurement, lower risk premiums, and an improved backdrop for investment decisions. For consumers, any pass-through effect to prices will depend on how companies react to lower trade-related costs and whether those savings are distributed through lower consumer prices or retained as margins. Policymakers and market participants will closely watch whether the truce yields durable improvements or merely temporary relief.

Forward-Looking Considerations

While the revised forecasts from Goldman Sachs, JP Morgan, and Barclays signal a more optimistic near-term view, uncertainties remain. The 90-day truce provides a window to reduce immediate tensions, but it does not guarantee a permanent resolution of underlying disputes. Economic forecasts and market targets are contingent on subsequent developments in trade relations, inflation trends, and central bank responses. Investors and businesses should treat these updated projections as part of a shifting landscape that requires ongoing monitoring.

In summary, the tariff truce has led major banks to lower recession odds and to delay expectations for Federal Reserve easing, while prompting a more constructive outlook for U.S. growth and equities. Market participants will be watching whether this temporary agreement translates into sustained improvements in trade conditions and economic momentum over the coming months.