JPMorgan Chase & Co. has become the first major Wall Street institution to forecast a U.S. recession in the second half of 2025, warning that President Donald Trump's aggressive tariff policies are creating a "stagflationary" environment marked by stagnant growth and persistent inflation. In a note to clients, the bank's chief U.S. economist, Michael Feroli, projected that real GDP will contract by 1% in Q3 2025 and 0.5% in Q4 2025, with full-year GDP falling 0.3%. The analysis, released as the U.S. debt-to-GDP ratio neared 125%, underscores growing concerns that the economy is "going broke slowly" as fiscal pressures and trade tensions converge.
The bank's mid-year outlook, published on June 25, 2025, lowered its U.S. growth forecast to 1.3% for the year, down from 2%, and assigned a 40% probability of a recession in the second half of 2025.
attributed this downgrade to the compounding effects of tariffs, which it estimates amount to a $430 billion tax burden equivalent to 1.4% of GDP. The bank warned that the tariffs-ranging from 10% on broad goods to 39% on Chinese imports-are disrupting supply chains, inflating household costs, and dampening business sentiment[2]. Feroli noted that core PCE inflation, the Fed's preferred gauge, is expected to end 2025 at 4.4%, up from 2.8% in February, creating a "dilemma" for policymakers tasked with balancing price stability and employment[1].The U.S. national debt, now exceeding $37.8 trillion, further exacerbates the risks. JPMorgan's David Kelly described the situation as a slow-motion fiscal crisis, with the debt-to-GDP ratio at 99.9% and rising. While tariff revenues temporarily offset deficits, Kelly cautioned that legal challenges to Trump's tariffs-such as the Supreme Court's recent ruling against the International Emergency Economic Powers Act (IEEPA) as a basis for tariffs-could disrupt this balance. "If realized, our stagflationary forecast would present a dilemma to Fed policymakers," Feroli wrote, noting that a weak labor market could eventually justify rate cuts despite inflationary pressures[1].
Global markets have already felt the ripple effects. The S&P 500 (^GSPC) and Nasdaq Composite (^IXIC) entered bear markets in late 2025, with the Nasdaq plummeting 20% from its peak. JPMorgan attributed the volatility to uncertainty over trade deals and the Fed's delayed response to weakening data. While the bank expects the Fed to cut rates by 100 basis points between December 2025 and spring 2026, it warned that a recession or sharper slowdown could trigger a more aggressive easing cycle[2]. Meanwhile, the U.S. dollar's strength faces headwinds as foreign demand for Treasuries wanes, with JPMorgan forecasting a 40-50 basis point rise in the "term premium" for long-term bonds[2].
Despite the macroeconomic risks, JPMorgan remains bullish on U.S. equities, particularly in technology and artificial intelligence sectors. The bank argued that strong fundamentals and investor flows would support stock market gains unless major policy or geopolitical shocks emerge. "The path of least resistance to new highs will be supported by Tech/AI-led strong fundamentals," the report stated, even as it acknowledged the "material weakness" in the labor market and the risks of a prolonged stagflationary slowdown[2].
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