Despite the recent decent performance of U.S. economic data, Goldman Sachs warns against becoming complacent too early, as the true negative impacts on the U.S. economy may not become apparent until May or June. From a longer-term perspective, structural depreciation of the dollar will become a major trend.
On April 27, Goldman Sachs analyst Rikin Shah stated in the latest research report that current U.S. hard data remains robust, and the labor market does not show any imminent danger signals, coupled with potential tariff agreements that may provide relief to the market. However, the market is far from being out of danger, as the negative impacts of tariff policies on the U.S. economy may only become more evident by mid-May or early June. The reasons provided by Goldman Sachs are as follows:
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Early purchases by U.S. consumers may boost consumption expenditure data for March and part of April, a phenomenon that has already begun to manifest.
At the same time, weak hiring is more likely to become a key variable in the job market than large-scale layoffs, which means that unemployment claims data may not be as indicative as usual.
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The report points out that with high policy uncertainty and low consumer and business confidence, Goldman Sachs still believes there is a 45% probability that the U.S. will fall into recession within the next 12 months.
Goldman Sachs also believes that given the broad and unilateral nature of tariffs, U.S. businesses and consumers will become price takers, and if supply chains or consumer spending are relatively inelastic in the short term, the dollar will depreciate further.
<h2>High Uncertainty, Persistent Tariff Impact</h2>
Goldman Sachs believes that we are currently in a very difficult period with extremely high uncertainty: 1. Uncertainty about the final outcome of tariff negotiations; 2. Uncertainty about the impact of tariffs on global growth and the labor market. Even if there is short-term relief, it is important to remember that this uncertainty has not yet been resolved.
The report notes that although tariffs are currently paused and negotiations are ongoing, a significant amount of tariffs still exist. Moreover, even if negotiations succeed, it will be difficult to see tariffs drop below a baseline level of 10%.
Due to inflationary pressures from tariffs and the uncertainty surrounding the ultimate direction of trade and fiscal policies, the Federal Reserve is currently in a reactive rather than proactive mindset.
Therefore, the Federal Reserve may need to see actual economic data deteriorate before responding, with the most likely trigger being a deterioration in the labor market. Thus, the market needs to closely monitor data related to the job market.
Goldman Sachs believes that in a recession scenario, the Federal Reserve could quickly and significantly cut interest rates (by more than 200 basis points). This scenario leads to market pricing in a greater reversal of Federal Reserve policy in the second half of 2026 and 2027, while the current challenge lies in determining the timing of the first rate cut.
<h2>Structural Depreciation of the Dollar Becomes a Major Trend</h2>
Under the influence of tariff uncertainty, there have been significant fluctuations in U.S. stocks, bonds, and currencies. However, Goldman Sachs believes that the dollar provides the most natural means to adjust to tariffs, uncertainty, and recession risks.
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Given the broad and unilateral nature of these tariffs, U.S. businesses and consumers become price takers, and if supply chains or consumers are relatively inelastic in the short term, the dollar may need to weaken
In addition, Goldman Sachs also stated that currently, a broader trading theme is at play, which is an important negative factor affecting the movement of the US dollar.
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The report noted that in recent years, the US has attracted a large influx of private capital into US assets, and this phenomenon may now be changing:
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First, a large number of leveraged investors hold US assets without hedging foreign exchange risks, which means there is significant room for increasing the hedging ratio.
Second, even if there is currently no very active rotation of US assets held, future marginal demand should change.
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However, Goldman Sachs also pointed out that the excessive allocation to the US has taken years to build and may take years to dissipate.
Coincidentally, Goldman Sachs Chief Economist Jan Hatzius also warned in a previous report that the dollar will depreciate further.
Jan Hatzius also stated that the valuation of the dollar remains high. Since the floating exchange rate era began in 1973, the real value of the dollar is still nearly two standard deviations above its average level. Only two historical periods have seen similar valuation levels, namely the mid-1980s and the early 2000s. During these two periods, the dollar experienced a depreciation of 25-30%.
According to Wall Street Journal, Jan Hatzius indicated that in recent years, the proportion of US assets held by non-US investors has been too high, and once they start to reduce their holdings, the depreciation pressure on the dollar will significantly increase. At the same time, the US's $1.1 trillion deficit requires a corresponding scale of net inflows to balance. If non-US investors lose interest in US assets, either US asset prices will fall, or the dollar will depreciate, or both will occur

Goldman Sachs believes that early purchases by American consumers may boost consumer spending data for March and part of April, a phenomenon that has already begun to manifest. At the same time, weak hiring is more likely to become a key variable in the labor market than large-scale layoffs, which means that unemployment claims data may not be as indicative as usual

- Goldman Sachs warns against complacency despite recent positive U.S. economic data, predicting that negative impacts may not surface until May or June.  
- The report highlights that while consumer spending has been buoyed by early purchases, uncertainty surrounding tariffs and their effects on the economy remains high, with a 45% chance of recession in the next 12 months.  
- Additionally, the dollar is expected to experience structural depreciation due to ongoing tariff uncertainties and a potential shift in investor interest away from U.S. assets.

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The US dollar will continue to depreciate! Goldman Sachs: It will not be until mid-May or early June that the negative impact on the US economy will become significant