JPMorgan predicts that the US economy will slip into a recession in the latter part of 2025 due to the effects of President Trump’s tariffs becoming more pronounced.
The chief US economist at the firm, Michael Feroli, anticipates a recession lasting two quarters in the latter half of 2025, with GDP contracting by 1% in the third quarter and 0.5% in the fourth quarter. For the entire year of 2025, Feroli’s team expects GDP to decrease by 0.3%.
“We now foresee real GDP to decline due to the pressures brought on by the tariffs,” Feroli commented in a note to clients on Friday evening.
Feroli indicated that a “decrease in economic activity” would cause the unemployment rate to rise to 5.3%. Recent data from the Bureau of Labor Statistics showed the unemployment rate was at 4.2% in March. While other economists have pointed to increasing recession risks, JPMorgan is the first major Wall Street research group to project a recession attributed to Trump’s tariffs impacting economic growth.
“The pressure from rising prices that we anticipate in the upcoming months may be more severe than what was experienced in the post-pandemic inflation surge, as nominal income growth has recently slowed, differing from the earlier period of acceleration,” Feroli noted. “Additionally, in a climate of heightened uncertainty, consumers may be hesitant to use their savings to support spending growth.”
Economists widely agree that Trump’s reciprocal tariffs—comprising broad 10% duties and additional charges on certain trading partners—are likely to increase inflation and restrict economic growth. Under Feroli’s baseline scenario, core PCE, the Federal Reserve’s favored measure of inflation, is expected to reach 4.4% by the end of 2025. The February reading of core PCE indicated a 2.8% rise in prices.
Feroli’s outlook suggests a “stagflationary” scenario, characterized by rising prices coupled with slowing growth. Given the Federal Reserve’s dual mandate to achieve maximum employment and price stability, this situation could pose a challenge for the central bank. As of Friday, market expectations included four interest rate cuts from the Fed amid growing worries about the US economy’s path.
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“If our stagflation prediction comes to fruition, it would create a dilemma for Fed policymakers,” Feroli stated. “We believe significant weakness in the labor market would be influential in the end, especially if it leads to diminished wage growth, thus giving the Committee more confidence that a price-wage spiral is not taking root.”
After Fed Chairman Jerome Powell emphasized a cautious stance regarding monetary policy adjustments during a speech on Friday, Feroli highlighted a potential “risk” that the Fed may not feel assured enough about the slowing economic indicators to lower interest rates until after its June meeting. Feroli’s base perspective is that the Fed will reduce interest rates by 25 basis points in June and continue to do so at each subsequent meeting until it lowers its benchmark rate to 3% by January 2026.
