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The largest bank in the United States predicts a contraction in GDP, high inflation, and rising unemployment in an environment of stagflation driven by President Donald Trump's new trade policy.
JPMorgan Chase & Co., the largest investment bank in the world, has raised alarms by predicting an economic recession in the United States in the second half of 2025.
The warning was issued in a note addressed to its clients by Michael Feroli, the chief economist of the firm in the U.S., who directly blamed the new wave of tariffs driven by the administration of Donald Trump.
Negative outlook: Decline in GDP and increased unemployment
The diagnosis from Feroli is clear, as revealed by the American media Bloomberg in a detailed analysis.
The analyst estimates that the real gross domestic product (GDP) of the U.S. will contract by 1% in the third quarter of 2025 and by 0.5% in the fourth, implying an annual decline of 0.3%.
This represents a sharp turn from the previous growth projection of 1.3%.
"Now we expect that real GDP will contract under the weight of the tariffs, and for the entire year (4Q/4Q) we are looking for a real GDP growth of -0.3%, compared to the previous 1.3%," Feroli stated.
Additionally, a decline in the job market is anticipated. According to Feroli, the unemployment rate could rise to 5.3%, compared to the 4.2% recorded in March, as economic activity slows down.
"We believe that the substantial weakness in the labor market will ultimately prevail, especially if it results in lower wage growth, which will give the committee greater confidence that a spiral of prices and wages is not taking hold."
Generalized tariffs and the risk of stagflation
The root of the economic decline lies in Trump's tariff policy, who announced last Wednesday a new package of tariffs affecting 180 countries and territories, imposing a minimum tax of 10% on imports.
Some trading partners will face significantly higher tariffs: Vietnam (46%), Thailand (36%), China (34%), Indonesia (32%), Japan (24%), and the European Union (20%).
The impact of rising prices could be even greater than that experienced during the post-pandemic inflation peak,” warned Feroli.
"Unlike back then, the growth of nominal incomes is now moderating, leaving consumers in a more vulnerable position," he added.
According to Feroli, these measures will not only hinder growth but will also put pressure on prices.
The inflation measured by the core Personal Consumption Expenditures (PCE) index, the preferred indicator of the Federal Reserve, could end the year at 4.4%, well above the 2.8% recorded in February.
This scenario—low growth and high inflation—creates a stagflation environment, one of the most challenging contexts for economic policymakers.
"If materialized, our stagflation forecast would pose a dilemma for the policymakers of the Federal Reserve," Feroli wrote.
Response of the Federal Reserve and Powell's caution
In light of the looming recession, Feroli predicts that the Federal Reserve will begin a cycle of interest rate cuts starting in June, with a reduction of 25 basis points per meeting until reaching a range of 2.75% to 3% by early 2026.
This projection remains despite the cautious attitude of the organization's president, Jerome Powell.
"It seems that we do not need to rush" to adjust the rates, Powell stated on Friday.
Strong market reaction
The immediate impact of the announcements was quickly felt on Wall Street.
The S&P 500 index plummeted to its lowest level in 11 months, with a loss of $5.4 trillion in just two trading sessions.
The Dow Jones fell nearly 8% (around 3,300 points), entering correction territory, while the Nasdaq, heavily weighted in technology, lost 10% and officially entered a bear market after a cumulative decline of 20% from its last all-time high.
Other entities are also cutting projections
JPMorgan's warning adds to a wave of pessimistic revisions from other financial institutions.
Barclays Plc lowered its growth forecast, anticipating a contraction in GDP "in line with a recession."
Citi lowered its forecast to 0.1%, while UBS adjusted it to 0.4%.
Jonathan Pingle, chief economist at UBS in the U.S., anticipates a significant trade adjustment
"We anticipate that U.S. imports from the rest of the world will decline by more than 20% during our forecast horizon, particularly in the coming quarters, which will bring the proportion of imports to GDP back to levels seen before 1986," he stated.
"The strength of the trade policy implies a substantial macroeconomic adjustment for a 30 trillion dollar economy," he added.
What does Trump say about a possible recession?
In March, Trump admitted - before announcing his controversial package of global tariffs - that the country could face an "economic transition period" as a result of the tariff war he is waging against various international powers.
However, the president promised that -once this ordeal is over- in the end, the United States will have so much money that they won't even know what to do with it.
In an interview granted to Fox News, in response to the question “Are you anticipating a recession this year?”, Trump replied:
"I hate predicting things like this. There is a transition period because what we are doing is very significant... It takes a little time, it takes a little time."
However, while acknowledging the possibility of a temporary recession, he insisted that the long-term benefits will justify the current sacrifices: "We are bringing wealth back to the U.S."
A global challenge with internal roots
JPMorgan Chase & Co. is one of the most influential financial institutions in the world.
Based in New York, it operates in over 100 countries and employs hundreds of thousands of people.
Through its divisions J.P. Morgan (investment banking and asset management) and Chase (consumer services), the firm plays a central role in the global economy.
Due to its size and importance, the entity is considered a "systemically important financial institution," which implies close regulatory oversight to ensure the overall stability of the financial system.
In summary, the forecast from JPMorgan reflects a bleak outlook for the U.S. economy in 2025.
With more aggressive trade policies, a declining GDP, high inflation, rising unemployment, and a Federal Reserve caught between tough decisions, the United States appears to be heading into a new phase of economic uncertainty. For Wall Street, recession is no longer just a possibility; it is a forecast with a name, numbers, and clear consequences.
Frequently Asked Questions about the Economic Recession in the U.S. and Trump's Tariff Policies
Why is an economic recession in the U.S. forecasted for 2025?
The economic recession in the U.S. is forecasted due to the aggressive tariff policies of President Donald Trump, which have increased import costs, leading to a contraction in GDP, high inflation, and rising unemployment. These measures have created an environment of stagflation, which is particularly challenging for the country's economic policies.
How will Trump's tariffs affect the American consumer?
Trump's tariffs will result in an average increase of more than $2,100 per year per American household, according to a report by Tax Foundation. Consumers will face higher prices on essential products such as electronics, clothing, and cars, as the additional import costs are passed on to retail prices.
Which sectors of the U.S. economy will be most affected by the tariffs?
The automotive sector, consumer electronics, and textile products will be severely impacted by tariffs. These sectors rely heavily on imports and, as a result, will experience a significant increase in operating costs, which could lead to a decrease in demand and job losses.
How has the Federal Reserve reacted to the potential recession?
The Federal Reserve has indicated that it may begin a cycle of interest rate cuts to stimulate the economy, despite the caution of Chair Jerome Powell. The Fed is trying to manage the risk of stagflation and keep long-term inflation expectations in check.
What global consequences could Trump's tariffs have?
Trump's tariffs could trigger a large-scale trade war, provoking retaliatory measures from other countries and negatively affecting international supply chains. This could lead to a slowdown in global economic growth and increase economic instability in various regions around the world.
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