Goldman Sachs has upped its US growth forecasts, following the Trump administration's agreement of a 90-day pause on tariffs with China at the start of the week.
The agreement will leave the US and China with 2025 tariff increases of 30% and 15%, respectively.
"While we had expected a de-escalation, the rate is lower than the +54pp tariff hike we had penciled into our baseline," the Wall Street bank said in a note.
"We expect this move to leave the US effective tariff rate increase at +13pp, assuming that likely sectoral tariffs on pharmaceuticals and semiconductors take effect, slightly below our previous assumption of +15pp."
In light of the pause and the "meaningful easing in financial conditions" over the last month, Goldman has hiked its 2025 growth forecast by 0.5 percentage points to 1% in the fourth quarter, and reduced its 12-month recession odds to 35%.
"Under our new economic baseline, the rationale for rate cuts shifts from insurance to normalization as growth remains somewhat firmer, the unemployment rate rises by somewhat less, and the urgency for policy support is reduced."
Goldman said it now expects the Federal Reserve to begin a series of three cuts in December, having previously predicted cuts would come in July. And it expects the Fed to implement the cuts at every other meeting rather than sequentially.