JPMorgan Chase analysts have issued a stark warning about the U.S. economy, forecasting a potential stagflationary slowdown driven by the Trump administration’s aggressive tariff policies. In a report released on June 25, the bank revised its 2025 GDP growth projection downward to 1.3%, a significant drop from the earlier estimate of 2%. The analysts also assess a 40% chance of recession in the latter half of the year, attributing the heightened risk to the impact of tariffs on economic growth and inflation.
The concern centers on the administration’s implementation of broad tariffs, including a universal 10% tariff on all imports and elevated tariffs on specific countries and goods. These measures have disrupted global trade flows, leading to increased costs for businesses and consumers alike. JPMorgan’s analysis suggests that the tariffs are contributing to persistent inflation, reminiscent of the stagflation experienced in the 1970s, characterized by stagnant economic growth and high inflation.
The bank also anticipates a weakening U.S. dollar amid slower domestic growth compared to more robust international economic policies. Foreign demand for U.S. Treasuries is expected to decline, increasing the term premium by 40-50 basis points. Despite recent yield spikes, Treasury yields are projected to stabilize at 3.5% for two-year notes and 4.35% for ten-year bonds by year-end.
The Federal Reserve’s monetary policy is also under scrutiny. While the central bank has maintained interest rates steady at 4.25%-4.5%, officials, including Boston Fed President Susan Collins, have indicated that rate cuts later in 2025 are possible due to an uncertain economic outlook. Collins emphasized that future rate cuts are being considered, with two penciled in for later this year, depending on economic developments and the impact of government policies, particularly regarding tariffs.
Amid these economic concerns, JPMorgan maintains a positive outlook on U.S. equities, expecting gains driven by strong fundamentals in the tech and AI sectors, continued consumer resilience, and investment flows. The bank believes that these sectors may provide some insulation against broader economic headwinds.
However, the broader economic landscape remains fraught with uncertainty. The administration’s tariff policies have led to retaliatory measures from key trading partners, further complicating the trade environment. The potential for escalating trade tensions poses additional risks to economic stability and growth.
In conclusion, JPMorgan’s analysis underscores the delicate balance policymakers must maintain to navigate the current economic challenges. The interplay between trade policies, inflation, and monetary policy decisions will be critical in determining the trajectory of the U.S. economy in the coming months.
