JPMorgan Warns of U.S. Economic Stagflation Linked to Tariffs

JPMorgan analysts have issued a warning about a potential stagflationary slowdown in the U.S. economy, attributing it to the impact of higher tariffs and current trade policies. The bank has revised its 2025 GDP growth forecast downward from 2% to 1.3% and assesses a 40% chance of a recession in the latter half of the year. The analysts cite tariffs as a primary factor contributing to lower growth and persistent inflation—a combination reminiscent of the 1970s stagflation. (reuters.com)

The U.S. economy is experiencing a resurgence of stagflation—a period characterized by stagnant economic growth coupled with rising inflation. This phenomenon is largely attributed to the Trump administration's recent implementation of significant tariffs on imports from key trading partners, including Canada, Mexico, and China. These tariffs have led to increased costs for businesses and consumers, contributing to a slowdown in economic activity and an uptick in inflation rates.

In early 2025, the Trump administration imposed a 10% duty on all imports, with additional tariffs of up to 25% on specific countries such as Canada and the European Union. These actions prompted retaliatory tariffs from affected nations, escalating trade tensions and creating uncertainty in global markets. (cnn.com)

The Organisation for Economic Co-operation and Development (OECD) has also downgraded its U.S. GDP growth projections, citing the substantial increase in effective tariff rates and resulting trade uncertainties. The OECD now forecasts U.S. GDP growth to slow from 2.8% in 2024 to 1.6% in 2025 and 1.5% in 2026. (cnn.com)

Federal Reserve Chair Jerome Powell has reiterated concerns about the inflationary impact of tariffs. During his semiannual testimony to Congress, Powell noted that the costs of these tariffs could reach hundreds of billions of dollars annually, with consumers bearing a portion of the burden. He emphasized that the expansive new tariffs are likely to lead to higher inflation and slower growth. (apnews.com)

The combination of higher tariffs and trade disputes has led to increased policy uncertainty, affecting business investment and consumer confidence. A recent survey conducted by Duke University's Fuqua School of Business reveals that U.S. Chief Financial Officers (CFOs) are increasingly concerned about the economic impact of tariffs and trade policies. In the first half of the year, 40% of surveyed companies reported postponing or canceling capital investments due to these trade uncertainties. Similarly, 40% identified trade policy as a major area of concern—up significantly from none two years prior. (axios.com)

The Federal Reserve faces challenges in balancing economic growth and inflation control. While some officials advocate for policy easing, others emphasize the risks of inflation stemming from tariffs and a robust labor market. The Fed is expected to delay rate cuts until late 2025 or early 2026, with potential reductions of 100 basis points if inflation persists. (reuters.com)

Despite these economic challenges, JPMorgan maintains a positive outlook on U.S. equities, expecting gains driven by strong fundamentals in the tech and AI sectors, continued consumer resilience, and investment flows. (reuters.com)

The current economic landscape presents a complex challenge for policymakers and investors alike. The interplay between trade policies, inflation, and growth necessitates careful monitoring and strategic decision-making to navigate the potential stagflationary environment.