Trump’s Tariffs To Shrink US GDP, Spike Unemployment: JPMorgan

JPMorgan Chase & Co. has forecast that the United States economy will slip into a recession this year, primarily due to the effects of new tariffs introduced by President Donald Trump, according to The Hill.

In a note to investors issued on Friday evening, JPMorgan's chief US economist, Michael Feroli, stated that the nation's gross domestic product (GDP) is expected to shrink "under the weight of the tariffs."

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Feroli further noted that the recession is projected to "push the unemployment rate up to 5.3 per cent," as reported by The Hill, referencing his analysis.

"We now expect real GDP to contract under the weight of the tariffs, and for the full year (4Q/4Q) we now look for real GDP growth of -0.3%, down from 1.3% previously," Bloomberg quoted Michael Feroli as saying on Friday.

Donald Trump's announcement on Wednesday of significant tariffs on US trading partners worldwide, including India, triggered a sharp decline in the S&P 500 index of US stocks, hitting its lowest point in 11 months and erasing $5.4 trillion in market value over just two trading days to end the week.

JPMorgan's prediction aligns with revised forecasts from other banks, which have been downgrading their US growth projections for this year since the tariff news, Bloomberg reported.

On Thursday, Barclays Plc indicated that it anticipates a GDP contraction in 2025, "consistent with a recession."

On Friday, Citi economists reduced their growth forecast for the year to a mere 0.1%, while UBS economists lowered theirs to 0.4%.

"We expect US imports from the rest of the world fall more than 20% over our forecast horizon, mostly in the next several quarters, bringing imports as a share of GDP back to pre-1986 levels," UBS chief US economist Jonathan Pingle wrote in a note.

"The forcefulness of the trade policy action implies substantial macroeconomic adjustment for a $30 trillion economy," the note continued.

Federal Reserve may begin lowering its benchmark interest rate in June

Feroli predicted that the Federal Reserve will start reducing its benchmark interest rate in June, followed by cuts at each subsequent meeting through January, bringing the rate down to a range of 2.75% to 3% from its current 4.25% to 4.5%, according to Bloomberg.

These reductions would occur despite an expected increase in a key measure of underlying inflation to 4.4% by year-end, up from the current 2.8%.

Federal Reserve chair voices concern

Jerome Powell, the Federal Reserve chair, also raised concerns about the potential consequences of these new tariffs.

Speaking at a business journalism conference on Friday, Powell warned that the tariffs would inflict far greater harm and potential economic damage than previously anticipated. He highlighted that this could complicate the Federal Reserve's efforts to manage inflation.

Trump's reciprocal tariffs

Under President Trump's reciprocal tariff scheme, a 10 per cent levy will be imposed on imports from all countries starting 5 April.

Additionally, from 9 April, nations with the largest trade deficits with the US will face higher, tailored tariffs. India is among those affected, with a 26 per cent tariff applied to all its exports.