While US President Donald Trump's harsh tariff measures on imports caused unease in financial markets, JPMorgan Chase published its updated economic outlook report for April 2025. The report emphasized that the US economy has entered a serious slowdown.
JPMorgan has lowered its 2025 real GDP growth forecast for the US from +1.3% to -0.3%. This sharp revision points to the extent 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 the weakening of economic activity.
Due to the newly implemented tariffs, the core personal consumption expenditures (Core PCE) inflation forecast, which measures price increases on core goods and services, was also revised upward. JPMorgan projects core PCE inflation at 4.4% for the end of the year. This increase of 1.4 percentage points from the previous forecast indicates that inflation is running above expectations.
The report states that the Fed could start cutting interest rates starting in June. JPMorgan predicts that interest rates will be cut at every meeting until January 2026, and that the upper limit of the federal funds rate could fall to 3.0% at the end of this process. However, it is stated that the real risk is not taking early steps, but a possible delay.
The new tariffs are expected to prompt retaliatory measures from major trading partners, particularly China. This poses a risk of reduced US exports. In addition, high inflation is expected to erode real (inflation-adjusted) incomes and cause households to cut back on their spending. In an environment of increasing uncertainty, consumers may be reluctant to continue spending using their savings.
According to JPMorgan, economic weakness will be particularly evident in the third and fourth quarters of the year. Growth may weaken further in these periods as temporary dynamics such as strong imports and inventory accumulation in the first quarter fade away.
JPMorgan Chief Economist Michael Feroli sees the current picture as a classic case of “stagflation”: high inflation, low growth and rising unemployment. However, Feroli says that the weakening of the labor market could ease the Fed's concerns about combating inflation, and that monetary policy could become more flexible, especially if wage growth slows.
*This is not investment advice.
