JPMorgan Sounds Alarm: US Tariffs May Spark Stagflation Crisis

Wall Street's giant just dropped a recession-shaped bomb. JPMorgan analysts warn that America's latest tariff moves could slam the brakes on growth while inflation keeps roaring—the worst possible combo for markets.

Stagflation 2.0 incoming?

When the world's most systemically dangerous bank starts sweating, maybe it's time to hedge with some digital gold. Just saying.

Trade shock raises concerns over recession

The warning comes as financial markets react to the tariff announcements by the TRUMP administration, which are intended to protect U.S. industries but could also push up costs for American consumers and businesses.

Markets had already repriced sharply in April when the deal announcement sent U.S. Treasury yields surging. JPMorgan explains that 2-year Treasury yields are up 3.8% while 10-year yields are NEAR 4.3%.

Yet despite the twists and turns, JPMorgan sees some relief coming by year-end, narrowing its target to 3.5% for two-year Treasuries and 4.35% for the 10-year. 

Still, the bank also cautioned that the term premium, or the extra yield investors demand to hold longer-dated bonds, could rise by 40 to 50 basis points amid mounting concerns about U.S. fiscal sustainability and reduced appetite from foreign buyers, the Federal Reserve, and commercial banks.

JPMorgan is more cautious, even though some investors still bet the Federal Reserve will start cutting interest rates later this year. The bank thinks that because of “sticky inflation,” tariffs are a factor in keeping it high; there probably won’t be any cuts from the Fed until December, only a start to a 100-basis-point pace-cutting cycle stretched out until the spring of 2026.

If the economy cools off more than expected, the Fed may have to be more aggressive, but for now, JPMorgan is bracing for a more gradual recalibration.

U.S. dollar falls as global growth picks up

JPMorgan also offered a bearish take on the dollar, arguing that it will suffer as foreign economies perform better than the United States, supported by growth-friendly policies abroad. On the other hand, the U.S. is considered to be heading toward protectionism and possibly isolationist measures, which could weigh on domestic expansion.

The bank says that divergence should put foreign currencies, particularly in emerging markets, on an upward trajectory while reducing foreign demand for U.S. assets like Treasury bonds.

A major worry cited is the sheer magnitude of the U.S. debt market, which could be more difficult to support as key purchasers, including China, Japan, and global banks, began to pull back.

But not all the news is bad. JPMorgan is still bullish on U.S. stocks, arguing that robust consumer spending, strong tech sector earnings, and investor demand could push stocks higher. The bank thinks that barring a big geopolitical letdown or policy disappointment, tech and AI-driven growth will support equity markets.

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