Because of tariffs, JPMorgan now predicts a recession in the US economy.

In response to recent tariff announcements by the Trump administration, Michael Feroli, Chief U.S. Economist at JPMorgan Chase (NYSE:JPM) Bank, dramatically downgraded the bank's economic outlook on Friday. In contrast to its earlier prediction of 1.3% growth, the bank now projects a contraction in the real GDP of the United States, with a full-year growth rate of -0.3%. The unemployment rate is predicted to rise to 5.3% during this projected downturn.

JPMorgan has raised its core PCE inflation prediction by 1.4 percentage points to 4.4% in addition to the GDP drop. The bank still expects the Federal Reserve to begin relaxing policy in June, even with this inflation spike.

In order to lower the top of the federal funds rate target range to 3.0%, JPMorgan anticipates that the Fed will lower rates at each meeting through January. Instead of an earlier start, the bank recognizes the possibility of delayed easing.

According to the bank's research, the tariffs' most immediate effects will be felt in the form of rising inflation, which will reduce real income and consumer spending. Given that nominal income growth has been slowing, this effect might be more noticeable than it was during the post-pandemic inflation increase.

The bank also expects that, particularly in an environment of heightened uncertainty, consumers could be reluctant to cut back on savings in order to promote spending growth.

Feroli also said he is more certain that retaliatory tariffs will hurt U.S. gross exports, especially if they come from China.

With contractions anticipated in the third and fourth quarters, the worst economic performance is anticipated to be concentrated in the middle of the year. This prediction is partially predicated on the reversal of import and inventory trends from the first quarter.