The factors for rising recession risk

In early April, J.P. Morgan Research raised the probability of a recession occurring in 2025 to 60% — a call it maintains despite recent tariff developments. “The U.S. policy mix appears to be shifting further, perhaps unintentionally, from supporting the current expansion,” said Bruce Kasman, chief global economist at J.P. Morgan.

Even with the latest step-back from the draconian Liberation Day measures, the 145% tariff on China alongside the universal 10% tax on other countries actually lifts the U.S. average tariff rate to around 30%. The ex-ante (pre-substitution) tax hike amounts to nearly $1 trillion, or 3% of GDP — making it the largest tax increase on U.S. households and businesses since World War II.

While this might not be paid as there will be a significant curtailment of trade, the effects could be magnified by retaliation, a slide in business sentiment and further supply chain disruptions. “What remains is still enough to push the U.S. and China — and thus likely the global economy — into a recession this year,” Kasman said.

While the current positioning of the U.S. and global expansion suggests the imminent downturn could be less severe than the last two downturns, recessions are inherently unpredictable, as Kasman noted. “Another important concern is that sustained restrictive trade policies and reduced immigration flow may impose lasting supply costs, which will lower U.S. growth over the long run,” he added. 

What is the outlook for interest rates? 

Against this rapidly evolving economic backdrop, J.P. Morgan Research expects the Fed to start easing in September, with further cuts at every meeting thereafter through January 2026 — reaching a 3% policy rate by mid-2026.

“The inflation forecast for this year has come down slightly, with core PCE now at 3.9% for the fourth quarter of 2025 versus the fourth quarter of 2024. This revision reflects both softer incoming March data and an expectation that the latest tariff developments will exert less pressure on prices,” said Michael Feroli, chief U.S. economist at J.P. Morgan. “Given the slightly stronger growth forecast, we’ve pushed back the first Fed ease from June to September, but we still expect the FOMC to cut the funds rate target every meeting until it reaches 3.0%.”

A similar approach to easing will likely play out across the globe. “The size and global scale of this shock will likely generate faster and larger policy stimulus, and the uncertainty around the relative importance of growth and inflation risks tilts clearly in the direction of growth,” Kasman said. “Global fiscal policy is likely to turn easier, even in advance of a recession dynamic taking hold, as the risk of growth shortfalls and sectoral disruptions in key industries prompts governments to act.”