JPMorgan is revising its 2025 recession prediction after President Donald Trump reached a temporary tariff truce with China.
In a Tuesday note, the bank said the chances of a US recession this year had fallen below 50%, down from a previous estimate of 60% after Trump announced sweeping tariffs on April 2.
“The administration’s recent dialing down of some of the more draconian tariffs placed on China should reduce the risk that the US economy slips into recession this year,” wrote JPMorgan chief US economist Michael Feroli. “We believe recession risks are still elevated, but now below 50%.”
JPMorgan found that the tariff change meant the average effective tariff rate had reduced from 24% to 14%, representing a tax cut of almost $300 billion.
“Most of that prior tax was likely to have been borne by US consumers in the form of higher prices,” Feroli said. “The rolling back of this tax should provide some relief to consumer spending, and in our modeling is enough to tip the second-half growth outlook from one of modest contraction to one of modest growth.”
He added that the lower tariffs are still a boost to inflation, however, which will affect disposable income and in turn, consumer spending.
The shift follows Trump’s announcement of a 90-day tariff pause that scales back duties on US imports from China from up to 245% to 30% as negotiations continue.
Although stocks have rallied and regained losses since April 2, some — including Federal Reserve board governor Adriana Kugler — have said the economy is not out of the woods yet.
JPMorgan also raised its projection for US economic growth this year to 0.6%, up from 0.2% before the China tariff pause.
Feroli also predicts that the personal consumption expenditures price index, a key measure of inflation, will rise to 3.5% rather than 4%, but still higher than 2.2% at the start of the year.
Feroli’s note also addressed a mild risk in the job market as businesses hold off on new hirings and investments due to economic uncertainties brought on by tariffs. A long list of major companies, including Morgan Stanley, Wayfair, UPS, and Meta, have been laying off staff this year.
“We still project a modest contraction in employment later this year, as labor demand is projected to slow even more than labor supply,” wrote Feroli.
“Our updated labor market outlook is less demanding of immediate action to stem employment risks; for the Fed, we are pushing back the timing of the resumption of rate cuts from September to December.”
Read the full article here
