JPMorgan Chase & Co. has sharply lowered its growth outlook for the United States (U.S.) in 2025, warning that rising tariffs and trade tensions are fueling a “stagflationary” environment—characterized by sluggish economic growth combined with persistent inflation—that could push the country toward recession in the latter half of the year. In its mid-year outlook released on June 25, 2025, the banking giant projected U.S. GDP growth at just 1.3 percent, down from an earlier forecast of 2 percent, and placed the probability of a recession in the second half of 2025 at 40 percent.
The downgrade reflects the growing negative impact of U.S. trade policies, which JPMorgan analysts say are dampening global economic momentum and rekindling inflationary pressures domestically. “The stagflationary impulse from higher tariffs has been the impetus for our lowered GDP growth outlook for this year,” the report noted, emphasizing that recession risks remain elevated despite some signs of resilience in consumer spending and employment.
Economic consequences of tariffs
JPMorgan’s economists estimate that current tariffs—such as a 39 percent levy on Chinese imports and a 10 percent tariff on goods from other countries—amount to an effective 13.4 percent tax on U.S. households and businesses. This translates to an ex-ante burden equivalent to a $430 billion tax hike, or roughly 1.4 percent of GDP. The tariffs not only raise input costs for companies but also disrupt supply chains and dampen business sentiment, compounding the challenges from fading fiscal stimulus and immigration support.
This scenario evokes echoes of the 1970s stagflation era, when the U.S. economy suffered from stagnant growth alongside high inflation—a combination that poses significant challenges for policymakers. JPMorgan’s forecast suggests that inflation will remain “sticky,” driven in part by tariff-induced price pressures, even as growth slows.
Impact on global growth and markets
The bank’s outlook extends beyond the U.S., projecting global growth to slow to 1.3 percent annualized in 2025—nearly a full percentage point below potential. While it upgraded China’s growth forecast from 1.3 percent to 3 percent, the figure remains subdued relative to historical norms. Emerging markets with more growth-supportive policies are expected to outperform, leading JPMorgan to adopt a bearish stance on the U.S. dollar relative to other currencies.
The outlook for U.S. Treasuries is also cautious. JPMorgan expects demand from foreign investors, the Federal Reserve, and commercial banks to decline as the U.S. debt market expands. The “term premium”—the extra compensation investors require for holding longer-dated Treasuries—is forecast to rise by 40 to 50 basis points over time, although the bank does not anticipate sharp yield spikes like those seen in early 2025. Year-end forecasts place two-year Treasury yields at 3.5 percent and 10-year yields at 4.35 percent.
JPMorgan predicts that the Federal Reserve will delay interest rate cuts until December 2025, with a total reduction of 100 basis points extending into spring 2026. This is later and more gradual than market expectations, which had priced in two 25-basis-point cuts during 2025. The bank cautions that a recession or sharper slowdown would trigger a more aggressive easing cycle.
Read more: J.P. Morgan cautions on 40 percent U.S. recession risk amid policy uncertainty
Resilience in U.S. stocks amid uncertainty
Despite the cautious macroeconomic outlook, JPMorgan remains bullish on U.S. equities, particularly in technology and artificial intelligence sectors. The bank believes that absent major policy or geopolitical shocks, strong fundamentals and investor flows will continue to support stock market gains. “The path of least resistance to new highs will be supported by Tech/AI-led strong fundamentals, a steady bid from systematic strategies, and flows from active investors on dips,” the report said.
Earlier in 2024, JPMorgan had projected a relatively optimistic economic environment for 2025, estimating only a 15 percent probability of recession in the first half of the year. The U.S. economy was expected to benefit from a robust labor market, sound credit fundamentals, and significant investments in AI and technology. However, escalating trade tensions and tariff impositions under the Trump administration introduced new risks that have since tempered this optimism.
By April 2025, JPMorgan raised the odds of a U.S. and global recession to 60 percent, citing disruptive U.S. trade policies as the primary risk to the global outlook. The imposition of sweeping tariffs and retaliatory measures by trading partners led to deteriorating business sentiment, supply chain disruptions, and heightened market volatility. Since then, the bank has moderated its recession probability to 40 percent, reflecting some easing of tensions and resilience in certain economic sectors, but still warns of a “stagflationary” slowdown.
