Where is the US Economy Heading: JPMorgan Provided a Very Detailed Assessment Following the Tariff Decision!

The strict customs tax measures on imports by U.S. President Donald Trump have caused unease in the financial markets, while JPMorgan Chase published its updated economic outlook report for April 2025. The report emphasized that the U.S. economy has entered a serious slowdown process.

JPMorgan has revised its real GDP growth forecast for the USA for 2025 from +1.3% to -0.3%. This sharp revision indicates the scale of the expected contraction in the economy. The report also forecasts that the unemployment rate will rise to 5.3%. The main reason for this increase is cited as the weakening of economic activity.

Due to the newly imposed customs duties, the core personal consumption expenditures measuring price increases in basic goods and services (Core PCE) inflation forecast has also been revised upwards. JPMorgan projects the core PCE inflation to be 4.4% by the end of the year. This increase of 1.4 points compared to the previous forecast indicates that inflation is running above expectations.

The report states that the FED may start interest rate cuts as of June. JPMorgan predicts that there will be a rate cut at every meeting until January 2026, and that by the end of this process, the upper limit of the federal funds rate could decline to 3.0%. However, it is noted that the main risk is not taking early action, but a possible delay.

New customs duties are expected to be met with retaliatory measures from major trading partners, especially China. This situation brings the risk of a decrease in U.S. exports. Additionally, it is anticipated that high inflation will erode real (inflation-adjusted) incomes and cause households to cut back on their spending. It is noted that in an environment of increasing uncertainty, consumers may be hesitant to continue spending by using their savings.

According to JPMorgan, economic weakness will become more pronounced, especially in the third and fourth quarters of the year. With the disappearance of temporary dynamics such as strong imports and inventory accumulation in the first quarter, growth may weaken further during these periods.

JPMorgan Chief Economist Michael Feroli assesses the current situation as a classic “stagflation” scenario: high inflation, low growth, and rising unemployment. However, Feroli states that the weakening labor market could alleviate the FED’s concerns about fighting inflation, especially if wage increases slow down, which could make monetary policy more flexible.