Will the US Enter a Recession This Year? JPMorgan Responded!

JPMorgan Chase issued a stern warning about the trajectory of the U.S. economy, predicting that a recession will occur this year due to the impact of the comprehensive tariffs announced by President Donald Trump earlier this week.

JPMorgan’s chief U.S. economist Michael Feroli stated in a note sent to clients that the bank now expects the U.S. economy to contract and has revised its GDP forecast for the entire year from a growth of 1.3% to a contraction of 0.3%.

Feroli said, “We now expect the real GDP to contract under the weight of customs tariffs” and added: “The anticipated contraction in economic activity is expected to suppress hiring and raise the unemployment rate to 5.3% over time.”

Markets reacted sharply to Trump’s announcement on Wednesday regarding broad tariffs targeting the U.S.'s trading partners. The S&P 500 fell to its lowest level in 11 months, wiping out $5.4 trillion in market value over two trading sessions.

JPMorgan’s downgrade reflects the views of other major banks as well. Barclays stated on Thursday that it expects a recession in 2025, while Citi economists lowered their 2025 growth forecast to just 0.1% on Friday.

Feroli also stated that the FED will start lowering interest rates from June and continue until January. Even though inflation is expected to rise, he expects the benchmark interest rate to drop from the current 4.25% to 4.5% range to between 2.75% and 3%.

JPMorgan predicts that core inflation will rise from the current 2.8% to 4.4% by the end of the year. Feroli described this outlook as “stagflationary”, a rare combination of slowing growth and rising prices that could create a policy dilemma for the FED.

Feroli stated, “If it materializes, our stagflation forecast will pose a dilemma for the FED policymakers” and added: “We believe that the significant weakness in the labor market, especially if it results in weaker wage growth, will eventually be effective.”

Despite increasing pressures, Fed Chair Jerome Powell stated in a speech yesterday that the central bank is not in a hurry to change its policy stance. Following the release of March employment data showing a strong increase in employment and a slight rise in the unemployment rate to 4.2%, Powell said, “It seems like we don’t need to rush.”