According to the latest forecast from JPMorgan, the U.S. tariff policy may lead to a painful scenario of stagflation — a toxic mix of stagnant growth and persistent inflation. This warning comes as the bank revises its 2025 U.S. GDP growth estimate down from 2% to just 1.3%.

In its semiannual economic outlook, JPMorgan stated that there is now a 40% probability of a recession in the second half of next year.

Economy Suffers Between Rising Prices and Slowing Growth

Stagflation — a nightmare scenario reminiscent of the 1970s — involves high inflation, weak growth, and rising unemployment, and is notoriously difficult to address using traditional policy tools. JPMorgan now sees this risk rising due to new tariffs introduced in April, which are likely to drive up both import and domestic production costs.

“The stagflationary impulse from higher tariffs was a key driver in our downward revision of the GDP forecast,” the bank stated. “We continue to see elevated recession risks.”

Bond Markets React – and the Fed May Delay Rate Cuts

Fears surrounding the impact of tariffs are already being reflected in bond markets. Yields on 2-year U.S. Treasuries have risen to 3.8%, while 10-year yields are nearing 4.3%, indicating investors are reassessing inflation and interest rate expectations.

Despite this volatility, JPMorgan expects some stabilization by year-end:

🔹 2-year bonds: yields to drop to 3.5%

🔹 10-year bonds: expected to decline to 4.35%

However, the bank also warns of rising term premiums — the extra yield investors demand for holding long-term debt — which could increase by 40 to 50 basis points due to concerns over U.S. fiscal sustainability and waning interest from foreign buyers, including China, Japan, and the Federal Reserve itself.

Rate Cuts? Not Until December — and Slowly

While some market participants are betting on the Federal Reserve beginning rate cuts later this year, JPMorgan remains cautious. With inflation still “sticky”, and tariffs adding upward pressure, the Fed is unlikely to act before December 2025.

🔸 The bank expects a gradual rate-cutting cycle of 100 basis points, extending into spring 2026.

Should the economy weaken more than anticipated, the Fed may need to respond more aggressively. But for now, JPMorgan is preparing for a measured, step-by-step recalibration.

Falling Dollar, Stronger Emerging Currencies? Likely

JPMorgan also offered a bearish outlook on the U.S. dollar, arguing that the greenback could weaken as foreign economies outperform the U.S. thanks to pro-growth international policies. Meanwhile, the U.S. leans toward protectionism and potentially isolationist policies, which may weigh on domestic expansion.

⚠️ The bank warns that the sheer size of the U.S. bond market may become harder to sustain if foreign buyers continue to pull back from U.S. assets.

Tech and AI Keep Equities Afloat

Not all outlooks are grim, though. JPMorgan remains bullish on U.S. equities, citing several reasons for optimism:

🔹 Strong consumer spending

🔹 Robust tech sector earnings

🔹 Persistent investor demand for stocks

Unless there’s a major geopolitical or political shock, JPMorgan believes that technology and AI-driven growth will continue to support equity markets.



#JPMorgan , #Inflation , #US , #economy , #worldnews

Stay one step ahead – follow our profile and stay informed about everything important in the world of cryptocurrencies!

Notice:

,,The information and views presented in this article are intended solely for educational purposes and should not be taken as investment advice in any situation. The content of these pages should not be regarded as financial, investment, or any other form of advice. We caution that investing in cryptocurrencies can be risky and may lead to financial losses.“