Goldman raises recession odds to 30% on higher inflation, lower GDP outlook as oil prices surge

Goldman Sachs is sounding a cautious note on the U.S. economy, raising its inflation forecast and trimming its growth outlook in response to surging oil prices caused by disruptions to the Strait of Hormuz. But even as recession risks climb, most of Wall Street’s base case remains slower growth — not an outright downturn.

In its weekly U.S. economics update published on Tuesday, Goldman said it now expects Brent crude to average $105 per barrel in March and $115 in April before retreating to $80 by year-end, assuming roughly six weeks of Hormuz supply disruptions. On the back of that revised oil outlook, the bank raised its headline PCE inflation forecast by 0.2 percentage points to 3.1% by December 2026 and nudged its full-year GDP growth estimate down to 2.1%. Goldman also raised its recession probability by 5 percentage points — to 30% — while stressing that a recession is still not its base case.​

One relative reassurance: Goldman does not expect the oil shock to durably unhinge inflation expectations. Even major energy shocks in recent history did not produce lasting shifts in where consumers and businesses expect prices to settle, the bank noted, though it flagged post-pandemic inflation psychology as a risk worth watching.​

Some analysts see even higher recession odds

Opinions across Wall Street diverge meaningfully, with some offering more dramatic warnings than Goldman about a potential recession. JPMorgan’s Bob Michele has warned the Iran war is not merely an inflation “speed bump,” pushing back on the Fed’s own projections and arguing that price pressures could stay sticky well into the second half of the year. EY-Parthenon puts recession odds at 40%, citing cascading effects on LNG infrastructure and refining systems beyond the oil market itself. Moody’s Analytics Chief Economist Mark Zandi has argued that recession odds were near even—before war broke out.

But others see the economy’s glass as considerably more than half full. BNP Paribas argues the U.S. is “well-positioned to absorb the shock,” pointing to America’s status as the world’s largest crude producer and net energy exporter — a structural advantage that simply didn’t exist during the oil shocks of the 1970s and 1980s. Higher oil prices redistribute income within the U.S. economy rather than draining it abroad, limiting the macro damage. The U.S. also uses significantly less energy per unit of GDP than in prior decades, blunting the inflationary punch that past supply shocks delivered.

The Fed Walks a fine line

The Federal Reserve held its policy rate steady at 3.5%–3.75% at last week’s Federal Open Market Committee (FOMC) meeting — a decision Goldman characterized as “a bit more hawkish than expected”. Chair Jerome Powell acknowledged the inflation risk from oil while placing employment and price concerns on equal footing, signaling that rate cuts remain possible but are not imminent. Goldman still expects two 25-basis-point cuts in September and December, bringing rates to 3–3.25% by year-end, and pushed back on market pricing that has begun to bake in rate hikes.​

The outcome hinges heavily on one variable: how long the Hormuz disruptions last. A swift de-escalation would allow oil risk premiums to fade and limit economic damage to a few tenths of a percentage point of growth. A prolonged conflict, by contrast, would entrench energy costs, crimp consumer spending, and force the Fed into an increasingly uncomfortable corner. Goldman currently puts that worst-case scenario—severe and sustained—as just that: a tail risk, not a forecast.​​

For now, the base case across most of Wall Street is an economy that slows but holds — with inflation running hotter than the Fed would like, growth below its long-run potential, and the next few months of geopolitical news determining which scenario ultimately wins out.

For this story, Fortune journalists used generative AI as a research tool. An editor verified the accuracy of the information before publishing.

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