Goldman Sachs is revising its recession risk models following unexpected tariff developments after Liberation Day. The investment bank, led by economist Jan Hatzius, has increased the probability of a US recession within the next year from 35% to 45%. This is the second adjustment, with the initial risk set at 20%. Hatzius attributes the heightened risk to tightened financial conditions post-tariff news, decreasing foreign tourism, and heightened policy uncertainty.

Hatzius anticipates that the Federal Reserve will react to an impending recession by implementing three consecutive 25 basis points insurance cuts, bringing the funds rate to 3.5-3.75%. In a scenario of recession, he projects a reduction of about 200 basis points over a year.

The markets have suffered a significant loss of $5.4 trillion after President Trump's recent tariff announcements, leading to the S&P 500 hitting an 11-month low. Global markets also experienced heavy selling, with major indices plunging. Market experts recommend focusing on stable, profitable sectors amidst the turmoil.