JPMorgan Warns US Tariffs Could Trigger Stagflation, Impacting Economic Growth

JPMorgan's mid-year economic outlook paints a cautious picture for the U.S. economy, warning that recent tariff policies could lead to stagflation—a rare combination of sluggish growth and persistent inflation. The bank now projects 2025 GDP growth at just 1.3%, down from 2%, citing protectionist trade measures as the primary drag.

Financial markets are already reacting to the TRUMP administration's April tariff announcements, which sent Treasury yields surging. The 2-year yield has climbed 3.8% as investors price in the potential economic fallout. This trade shock comes with a 40% probability of recession in late 2025, according to JPMorgan's analysis.

Stagflation presents unique policy challenges, last seen during the 1970s oil crises. The current scenario could prove particularly difficult to address through conventional monetary tools, potentially creating Ripple effects across asset classes.