JPMorgan Chase has released a report warning of potential economic repercussions due to new tariff policies in the U.S., including the risk of stagflation.
JPMorgan's GDP Predictions and Recession Risks
In its mid-year economic outlook released on Wednesday, JPMorgan reported a 40% chance of a recession in the second half of 2025. The U.S. GDP is projected to rise only 1.3% in 2025, down from a previous forecast of 2%. This new projection comes amid growing fears that protectionist trade measures, including new tariffs introduced in April, will raise prices while slowing business activity.
"The stagflationary impulse from higher tariffs has been the impetus for our lowered GDP growth outlook for this year," the bank stated.
Market Impacts of Tariff Policies
JPMorgan's warning coincides with market reactions to tariff announcements by the Trump administration, aimed at protecting U.S. industries but which may also drive up costs for consumers and businesses. The markets have already repriced sharply in April following the announcement, sending U.S. Treasury yields soaring; 2-year Treasury yields are now at 3.8%, while 10-year yields are near 4.3%. However, JPMorgan is optimistic about some relief by year-end, narrowing its targets to 3.5% for two-year Treasuries and 4.35% for ten-year Treasuries.
Outlook on the Dollar and Stock Market
JPMorgan also provided a cautious outlook for the dollar, suggesting it may weaken as foreign economies perform better than that of the U.S., supported by growth-friendly policies abroad. Conversely, the U.S. appears to be leaning towards protectionism, which could hinder domestic expansion. The bank notes that this divergence may lift foreign currencies, especially in emerging markets, while decreasing foreign demand for U.S. assets such as Treasury bonds. Nonetheless, JPMorgan remains bullish on U.S. stocks, anticipating robust consumer spending and strong tech sector earnings will support stock prices.
Overall, JPMorgan warns of potential stagflation risks tied to the new U.S. tariff policies and expresses cautious forecasts for the dollar and stock market. The government and central bank need to take these changes into account to minimize adverse effects.
