JPMorgan Warns of Tariff-Driven Economic Slowdown with Stagflation Risks in 2025

25 June 2025

JPMorgan economists are sounding the alarm on a potential stagflationary slowdown in the United States by the end of 2025, driven largely by the recent wave of tariffs enacted by the Biden administration. In a note to clients released Tuesday, the bank's analysts highlighted that a combination of slowing economic growth and rising inflationary pressures could weigh heavily on U.S. output in the second half of the year, significantly altering the macroeconomic outlook that previously suggested a resilient and soft-landing economy.

The forecast comes at a pivotal time for financial markets and policymakers. After a relatively stable start to the year, recent developments around global trade and domestic policy have injected uncertainty into the broader growth narrative. According to JPMorgan’s model simulations, the cumulative effect of announced and anticipated tariffs could push the annualized GDP growth rate to just 0.5 percent by the fourth quarter of 2025. This would represent a sharp deceleration from current estimates and reflects rising concerns that the political trade agenda is beginning to bleed into the real economy.

The bank’s report attributes much of the anticipated slowdown to higher input costs stemming from tariffs on goods imported from China, Mexico, and the European Union. These tariffs, aimed at protecting U.S. manufacturing and technology interests, have raised the cost of imported intermediate and finished goods. As a result, businesses are passing along these costs to consumers, a move that could reignite inflationary pressures just as the Federal Reserve has begun laying the groundwork for potential rate cuts later in the year.

JPMorgan’s analysis suggests that inflation could remain stubbornly above 3 percent well into 2025. While this is a decline from the post-pandemic highs, it remains elevated relative to the Federal Reserve’s 2 percent target and presents a dilemma for central bankers. With real economic growth slowing and inflation staying elevated, policymakers could find themselves constrained, unable to cut rates aggressively without stoking further price instability.

This stagflationary risk marks a departure from earlier projections in which inflation was expected to decline in tandem with slowing consumer demand and improving supply chains. JPMorgan now believes that tariffs have disrupted these expectations, introducing artificial cost pressures that are not easily offset by productivity gains or supply-side adjustments. The result is an economy that grows slower but with persistently higher prices.

The implications extend beyond GDP growth and inflation metrics. JPMorgan’s economists also flagged potential labor market repercussions, noting that businesses facing higher costs may slow hiring or reduce hours to manage expenses. While the job market remains relatively robust today, signs of cooling have begun to appear in lower wage growth and an uptick in part-time employment. The report cautions that further deterioration in labor market conditions would not only undermine consumer spending but also heighten political and social tensions during a contentious election year.

Equity markets have so far shrugged off these warnings, buoyed by strong corporate earnings and continued momentum in AI and technology sectors. However, JPMorgan urged investors to remain vigilant. In a stagflationary environment, traditional equity and bond portfolios may face challenges as inflation eats into real returns while growth-sensitive sectors underperform. The report recommended a more defensive allocation strategy with a tilt toward inflation-hedging assets such as commodities and Treasury Inflation-Protected Securities (TIPS).

The timing of the bank’s revised outlook coincides with upcoming remarks from Federal Reserve Chair Jerome Powell and other key economic data releases. The Fed has been cautious in its messaging, walking a tightrope between inflation vigilance and growth support. Should inflation data come in hotter than expected in the coming months, it may reduce the central bank’s flexibility and force it to hold interest rates higher for longer, despite mounting evidence of a slowdown.

On the fiscal front, the Biden administration has defended the tariffs as necessary tools to level the playing field and reduce dependence on foreign supply chains, particularly in critical sectors like semiconductors and renewable energy. However, critics argue that the short-term economic cost is too high, especially as American consumers face higher prices on everyday goods. The political calculus appears to favor domestic protectionism, but the economic consequences could create headwinds for both parties heading into the 2026 midterms.

JPMorgan’s outlook concludes with a warning that unless trade tensions de-escalate or are offset by targeted fiscal measures, the U.S. economy may be entering a prolonged period of low growth and sticky inflation. For businesses, investors, and policymakers alike, navigating the remainder of 2025 will require recalibrating expectations and preparing for a more volatile and constrained economic environment.