Goldman Sachs reported a 65% probability of recession prior to recent tariff changes. They indicated that a quick reversal of these tariffs could lower this probability and noted that any recession would likely be milder than historical ones due to stable financial conditions and strong private sector balance sheets.
After President Trump’s announcement to revise tariffs, Goldman updated its forecast to a non-recession baseline. Economists and traders adjusted their evaluations accordingly, reflecting uncertainty in the current economic environment.
Volatility and Investment Challenges
The volatility of these developments poses challenges for businesses considering substantial investments, contributing to ongoing economic concerns. Long-term implications remain uncertain.
We find that Goldman’s earlier call—placing the odds of a recession at 65%—was largely rooted in concerns around the direction of trade policy. Their view suggested that should the tariffs persist, short-term economic activity might fall off more sharply. But they also remarked that balance sheets remain relatively healthy, and liquidity isn’t drying up. That’s important, because it implies that downturns, if they do occur, wouldn’t necessarily follow the aggressive patterns seen in 2008 or 2001.
Then came the shift. With Washington stepping back from some of the proposed trade measures, analysts at Goldman quickly rolled that warning back. Instead of bracing for contraction, the bank took a more tempered view: the economy might bend, but not break. That adjustment has rippled through markets. We’ve seen yields twitch, equity desks briefly recalibrate forecasts, and options traders revise strategies around expected ranges. Smaller hedging volumes on indices amplified intraday fluctuations.
Policy and Market Reactions
The implications can’t be overlooked. The upshot is straightforward—policymakers can move risk sentiment quickly, and in both directions. What seemed like a downward slope a month ago now appears more like choppy waters. Still unsettled, but less lopsided.
From our perspective, what this means in practical terms is that directional bets tied closely to weekly headlines carry greater downside. Even well reasoned short-dated positions may meet unwanted volatility, not due to incorrect assumptions, but because timing now hinges on policy reaction speed rather than traditional measures like labour market pressure or debt ratios.
Blankfein’s former colleagues based their call on historical precursors, but also on what hadn’t changed—credit availability, household savings, corporate debt service. Those metrics, we note, remain largely intact. That is key when interpreting price moves in derivatives. The destabilising events are coming from the top, not from consumer fundamentals.
We’ve noticed implied volatility across front-month options hasn’t quite caught up to realised moves—telltale of uncertainty not being fully priced in. For firms deploying derivative strategies, especially delta-hedged or volatility-targeted approaches, this offers short windows where execution timing becomes less forgiving.
