JPMorgan Raises US Inflation Forecast to 2.7% by 2025 Amid Trade Uncertainty

JPMorgan Global Research has adjusted its economic projections for the United States, anticipating higher inflation rates by 2025. The bank now expects the Personal Consumption Expenditures (PCE) price index, a critical gauge of inflation, to reach 2.7% by 2025, marking a 0.2% increase from previous estimates. Additionally, the core PCE price index, which excludes volatile food and energy components, is projected to rise to 3.1%, a 0.3% increase from prior forecasts. These revisions come amidst escalating trade rhetoric from Trump, which has introduced uncertainty into the economic outlook and the Federal Reserve's policy trajectory.

The upward revision in inflation expectations by JPMorgan underscores growing concerns about the impact of tariffs on consumer prices. According to the analyst's forecast, the Consumer Price Index (CPI) is expected to show an annual increase of 2.7% in June, up from 2.4% in May. This forecast aligns with broader market expectations, which anticipate a 0.3% monthly increase in the CPI for June, driven by tariff-related price pressures. The core CPI, which excludes food and energy, is projected to rise by 3.0% year-over-year, further highlighting the inflationary risks identified by JPMorgan.

The revised outlook by JPMorgan comes as the Federal Reserve closely monitors inflation trends. The central bank's minutes have emphasized the potential impact of tariffs on both inflation and economic activity. While the Fed has not yet adjusted its policy stance in response to these inflationary pressures, the upward revisions by JPMorgan suggest that the bank is anticipating a more hawkish approach from the central bank in the coming months. The effective rate is expected to land around 10–15%, enough to pressure growth and inflation, but likely not enough to trigger a recession.

The escalating trade rhetoric and the resulting uncertainty have also influenced market sentiment. Despite concerns about inflation and the potential for tighter monetary policy, markets have shown resilience, with investors navigating the "wall of worry." This resilience reflects a degree of optimism about the underlying strength of the economy, even as inflationary pressures mount. However, the upward revisions in inflation expectations by JPMorgan serve as a reminder of the risks that lie ahead, particularly as the impact of tariffs on consumer prices becomes more apparent.