JPMorgan warns of stagflation due to US tax policy
JPMorgan Bank has just warned about the risk of stagflation - a phenomenon of imbalance between stagnant economic growth and rising inflation, stemming from recent US tariff policies.
In its mid-year economic outlook report released on Wednesday, JPMorgan assessed the probability of a recession in the second half of 2025 as high as 40%.
GDP growth forecast to decline, pressure from protective tariffs
JPMorgan forecasts U.S. GDP to grow just 1.3% in 2025, down from its previous forecast of 2%. The revision is due to trade protectionism, including the broad tariffs announced in April, which could raise costs and slow domestic trade and manufacturing.
“The stagflation impact from the tariff hikes is the main driver behind our downgrade of GDP growth forecasts for this year,” the bank said. “Recession risks remain elevated.”
Stagflation – the challenger of traditional economic policy
The last time we saw stagflation was during the Great Depression of the 1970s. This was a rare and complex period in which inflation remained high while economic growth slowed and unemployment rose. This created an economic shock that was difficult to correct with conventional monetary or fiscal policy tools.
Trade shock adds to recessionary pressures
JPMorgan's warning comes as financial markets reacted furiously to the Trump administration's tariff announcements, which are aimed at protecting U.S. industry but could also push up costs for domestic consumers and businesses.
The market has been volatile since April when the news sent US Treasury yields soaring, with the 2-year yield rising to 3.8% and the 10-year yield reaching nearly 4.3%.
Forecasting bond yields and fiscal sustainability risks
While JPMorgan expects yields to fall slightly this year to 3.5% for the 2-year and 4.35% for the 10-year, it warned that pressure on longer-term rates remains. It predicted that the “term premium” — the risk premium on long-term bonds — could rise by 40 to 50 basis points due to concerns about fiscal sustainability and reduced demand from foreign investors, the Fed and commercial banks.
Fed maintains cautious stance, inflation sticks
JPMorgan said that while it expects the Fed to start cutting rates later this year, given “persistent inflation” — partly due to tariff pressures — the Fed is unlikely to cut rates any sooner than December. The cuts could last until the first quarter of 2026, totaling 1% basis points.
If the US economy cools faster than expected, the Fed may have to act more aggressively, but for now, the bank expects the adjustment to be gradual and cautious.
US dollar weakens as global growth recovers
JPMorgan adopts a negative view on the USD, predicting that the US currency will come under pressure due to better growth in foreign economies, supported by effective growth-boosting policies.
In contrast, the United States is moving toward protectionist and possibly trade isolationist policies, making it difficult to expand domestically and attract international investment.
Impact on global assets and currencies
This could lead to a rise in emerging market currencies and a drop in demand for U.S. assets like Treasuries. The biggest concern is the size of the U.S. debt market, as major buyers like China, Japan and global banks begin to slow their purchases.
Still, US stocks shine
Still, JPMorgan remains positive on U.S. stocks, buoyed by strong consumer spending, strong tech results and strong investment demand. Barring any unexpected political or policy shocks, growth in technology and artificial intelligence will continue to support the stock market.
Source: https://tintucbitcoin.com/jpmorgan-warning-tax-rental-economic-security/
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