JPMorgan analysts are warning that U.S. trade policies may trigger a significant drag on global economic growth and potentially reignite domestic inflation pressures.
In their latest mid-year outlook, the bank forecasted a 40% chance of a recession hitting the United States in the second half of 2025.
They also downgraded their projection for U.S. GDP growth to 1.3% for the year, down from 2% at the beginning of 2025.
The cut was largely attributed to the economic consequences of increased tariffs.
“The stagflationary impulse from higher tariffs has been the impetus for our lowered GDP growth outlook for this year,” the note stated.
“We still view recession risks as elevated.”
Stagflation, a rare economic phenomenon that combines stagnating growth and rising inflation, was a hallmark of the U.S. economy during the 1970s.
JPMorgan’s warning suggests this troubling pattern could re-emerge as a result of aggressive trade measures.
Dollar Faces Pressure, Treasury Risks Grow
The bank also expressed a bearish stance on the U.S. dollar, citing weaker growth prospects compared to more stimulus-friendly policies overseas.
Analysts anticipate that currencies in emerging markets may benefit from relatively stronger economic support outside the United States.
Adding to the challenges, the report pointed to a shrinking appetite among key buyers of U.S. Treasuries.
Foreign investors, the Federal Reserve, and commercial banks are all expected to reduce their demand for government bonds as the size of the U.S. debt market expands.
The consequence of this, according to JPMorgan, could be a rise in the term premium—essentially, the extra yield investors require for holding longer-term Treasuries—by as much as 40 to 50 basis points.
However, the bank does not foresee a repeat of the dramatic yield spikes seen earlier in the year.
Interest Rate Cuts Expected—But Not Soon
In April, U.S. Treasury yields surged amid market turmoil sparked by former President Donald Trump’s announcement of sweeping tariffs.
JPMorgan expects yields to moderate over the coming months, forecasting two-year Treasuries to end the year at 3.5% and ten-year yields at 4.35%.
They stood at approximately 3.8% and 4.3% as of Wednesday.
The bank believes that due to persistent inflation linked to tariffs and underlying economic strength, the Federal Reserve is unlikely to begin cutting interest rates until December.
Over the course of late 2025 into spring 2026, JPMorgan expects the Fed to lower rates by 100 basis points—far later than the current market consensus, which anticipates two cuts of 25 basis points this year.
Should the economy falter more than expected, the rate-cutting cycle could accelerate significantly, analysts noted.
Equities Outlook Remains Upbeat
Despite the warning signs, JPMorgan remains optimistic about the performance of U.S. equities.
Analysts highlighted strong consumer spending and resilient economic fundamentals as key supports for the stock market.
“Absent major policy and/or geopolitical surprises … we believe 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 added.
This cautiously bullish stance on equities contrasts with the bank’s broader concerns about growth and inflation, underscoring the complexity of navigating today’s economic environment.