JPMorgan Sounds Alarm: Trump’s tariffs to send US into recession

JPMorgan Chase & Co. has estimated that the U.S. economy will be entering a recession this year because of the new tariffs declared by the Trump administration. The bank's chief U.S. economist, Michael Feroli, said, 

"We now expect real GDP to contract under the weight of the tariffs, and for the full year (4Q/4Q) we now look for real GDP growth of -0.3%, down from 1.3% previously." 

Increasing Unemployment Rates Projected

Feroli also expects the downturn in economic activity to result in higher unemployment, forecasting an increase to 5.3%. 

"The forecasted contraction in economic activity is expected to depress hiring and over time to lift the unemployment rate to 5.3%,” Feroli said.

Stock Market Reacts Negatively

After President Donald Trump declared significant tariffs on U.S. trading partners, the S&P 500 index fell sharply, hitting its lowest point in 11 months and wiping out $5.4 trillion in market value in two trading sessions. 

Financial Institutions Reduce Growth Projections

JPMorgan's revised forecast aligns with similar adjustments from other financial institutions. Barclays Plc now expects GDP to contract in 2025, "consistent with a recession." Citi economists have reduced their growth forecast for this year to just 0.1%, while UBS economists have lowered theirs to 0.4%. 

Impact on U.S. Imports

UBS Chief US Economist Jonathan Pingle said that US imports from the rest of the globe will decline more than 20% across the horizon forecast, mainly in the next few quarters. Such a decline would return imports as a percentage of GDP to levels before 1986. 

Federal Reserve's Possible Reaction

Feroli forecast the Federal Reserve to start slicing its benchmark rate in June and then make subsequent cuts at each of its ensuing meetings up through January, getting the benchmark rate down to a 2.75% to 3% level from where it now sits at 4.25% to 4.5%. 

These reductions are forecast even after a major indicator of underlying inflation is expected to jump to 4.4% at the end of the year, compared to the existing 2.8%. 

Federal Reserve Chair's View

Federal Reserve Chair Jerome Powell had something to say about it, saying, "It feels like we don't need to be in a hurry" to do anything about rates. His comments came after the release of the most recent monthly employment report, which reported strong hiring in March in conjunction with a minor increase in the unemployment rate to 4.2%. 

The interaction between recent tariffs and forecasted economic recession has generated sizable revisions to economic projections and policy deliberations.