JPMorgan Chase & Co. said it expects the US economy to fall into a recession this year after accounting for the likely impact of tariffs announced this week by the Trump administration.
“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,” the bank’s chief US economist, Michael Feroli, said Friday in a note to clients, referring to gross domestic product.
“The forecasted contraction in economic activity is expected to depress hiring and over time to lift the unemployment rate to 5.3%,” Feroli said.
US President Donald Trump’s announcement Wednesday of major tariffs on US trading partners around the world sent the S&P 500 index of US stocks to its lowest level in 11 months, wiping away US$5.4 trillion ($7.25 trillion) of market value in just two trading sessions to close out the week.
JPMorgan’s forecast came alongside similar changes from other banks, which have been slashing projections for US growth this year since the tariff announcement. On Thursday, Barclays said it expects GDP to contract in 2025, “consistent with a recession”.
On Friday, Citi economists cut their forecast for growth this year to just 0.1%, and UBS economists dropped theirs to 0.4%.
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“We expect US imports from the rest of the world fall more than 20% over our forecast horizon, mostly in the next several quarters, bringing imports as a share of GDP back to pre-1986 levels,” UBS chief US economist Jonathan Pingle said in a note. “The forcefulness of the trade policy action implies substantial macroeconomic adjustment for a US$30 trillion economy.”
‘Stagflationary forecast’
Feroli said he expects the US Federal Reserve to begin cutting its benchmark interest rate in June and proceed with rate cuts at each subsequent meeting through January, bringing the benchmark into a 2.75% to 3% range from the current 4.25% to 4.5% range.
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Those cuts would come despite a rise in a key measure of underlying inflation to 4.4% by the end of the year, from the current level of 2.8%.
“If realised, our stagflationary forecast would present a dilemma to Fed policymakers,” Feroli wrote. “We believe material weakness in the labour market holds sway in the end, particularly if it results in weaker wage growth thereby giving the committee more confidence that a price-wage spiral isn’t taking hold.”
On Friday, Fed Chair Jerome Powell said “it feels like we don’t need to be in a hurry” to make any adjustments to rates. His comments followed the release of the latest monthly employment report from the Bureau of Labour Statistics, which showed robust hiring in March alongside a slight uptick in the unemployment rate, to 4.2%.
Investors are betting on a full percentage point of reductions by the end of the year, according to futures.
