World's Largest Investment Bank Foresees U.S. Economic Recession and Pinpoints Its Timing

America's leading bank is forecasting a downturn in GDP, persistent inflation, and a rise in unemployment, all within a stagflationary climate spurred by President Donald Trump's renewed trade policies. JPMorgan Chase & Co., the globe's largest investment bank, has sounded alarms by predicting an economic recession in the United States during the latter half of 2025.

This warning was issued in a communication to clients by Michael Feroli, the firm's chief U.S. economist, attributing the potential downturn to the wave of tariffs introduced by the Trump administration.

Economic Outlook: Shrinking GDP and Rising Unemployment

Feroli's analysis is stark, as reported by American media outlet Bloomberg in a detailed review. The analyst projects the real U.S. GDP will shrink by 1% in the third quarter of 2025 and 0.5% in the fourth, resulting in an annual decline of 0.3%. This marks a sharp reversal from the previous forecast of 1.3% growth.

"We now anticipate real GDP to contract under the weight of tariffs, with an expected real GDP growth of -0.3% for the year (4Q/4Q), down from the earlier 1.3%," Feroli remarked. Additionally, the job market is expected to worsen. Feroli suggests unemployment could climb to 5.3%, up from March's 4.2%, as economic activity slows.

"We believe significant labor market weakness will eventually prevail, especially if it results in slower wage growth, providing the committee greater confidence that a price-wage spiral isn't taking hold," he added.

Comprehensive Tariffs and Stagflation Risk

The deterioration roots back to Trump's tariff policy, which last Wednesday introduced a new set of tariffs affecting 180 countries and territories, with a minimum 10% duty on imports. Some trade partners will face significantly higher tariffs: Vietnam (46%), Thailand (36%), China (34%), Indonesia (32%), Japan (24%), and the European Union (20%).

"The price increase impact could be even greater than during the post-pandemic inflation peak," warned Feroli. "Unlike then, nominal income growth is moderating now, leaving consumers more vulnerable," he explained. According to Feroli, these measures will not only stall growth but also exert pressure on prices.

Inflation, as measured by the core Personal Consumption Expenditures (PCE) index, the Federal Reserve's preferred gauge, could close the year at 4.4%, far exceeding February's 2.8%. This scenario of low growth and high inflation creates a stagflation environment, one of the most challenging contexts for economic policymakers.

"If realized, our stagflation forecast would pose a dilemma for the Federal Reserve's monetary policy decision-makers," Feroli wrote.

Federal Reserve's Response and Powell's Cautious Approach

In light of a potential recession, Feroli anticipates the Federal Reserve will commence a series of interest rate cuts starting in June, lowering rates by 25 basis points per meeting until reaching a range of 2.75% to 3% by early 2026. This projection holds despite the cautious stance of the organization's chairman, Jerome Powell.

"It seems we don't need to rush" to adjust rates, Powell stated on Friday.

Market Reactions and Adjustments from Other Entities

The immediate impact of the announcements was quickly felt on Wall Street. The S&P 500 plummeted to its lowest level in 11 months, losing $5.4 trillion in just two trading sessions. The Dow Jones dropped nearly 8% (around 3,300 points), entering correction territory, while the tech-heavy Nasdaq lost 10%, officially entering a bear market after a 20% drop from its last all-time high.

Other financial institutions are also revising their forecasts downward. Barclays Plc reduced its growth projection, anticipating a GDP contraction "in line with a recession." Citi lowered its projection to 0.1%, while UBS adjusted it to 0.4%. Jonathan Pingle, UBS's chief U.S. economist, anticipates a significant trade adjustment: "We expect U.S. imports from the rest of the world to fall over 20% during our forecast horizon, mainly in the upcoming quarters, bringing the imports-to-GDP ratio back to pre-1986 levels," he stated.

"The severity of the trade policy implies a substantial macroeconomic adjustment for a $30 trillion economy," he added.

Trump's Take on a Potential Recession

In March, Trump acknowledged — before announcing his controversial global tariff package — that the country might face an "economic transition period" due to the tariff war he promotes against several international powers. However, the president promised that once this phase is over, the U.S. will have so much money that "we won't even know what to do with it."

In an interview with Fox News, when asked, "Are you expecting a recession this year?" Trump replied: "I hate predicting things like that. There's a transition period because what we're doing is very big... It takes a bit of time, it takes a bit of time." Yet, while acknowledging the possibility of a temporary recession, he insisted that the long-term benefits would justify the current sacrifices: "We're bringing wealth back to the U.S."

A Global Challenge with Domestic Roots

JPMorgan Chase & Co. is among the world's most influential financial institutions. Based in New York, it operates in over 100 countries and employs hundreds of thousands of people. Through its J.P. Morgan (investment banking and asset management) and Chase (consumer services) divisions, the firm plays a central role in the global economy.

Due to its size and importance, the entity is considered a "systemically important financial institution," which entails close regulatory oversight to ensure the global financial system's stability.

In summary, JPMorgan's forecast paints a grim picture for the U.S. economy in 2025. With more aggressive trade policies, declining GDP, high inflation, rising unemployment, and a Fed trapped in tough decisions, the United States seems headed towards a new phase of economic uncertainty. For Wall Street, the recession is no longer just a possibility: it's a forecast with specific names, numbers, and clear consequences.